Canadians are hearing a lot about a federal carbon tax, and may be uncertain about how it applies to their business. Uncertainty is understandable. The program evolved quickly in late 2018. Details are still unclear on a number of provisions.  

In addition to this article, information is available on the Government of Canada website.

Regardless of how the Government of Canada carbon tax unfolds in 2019, there are energy management steps any organization should be taking. In all circumstances, we highly recommend businesses take action on energy. It is an effective means to manage risks, reduce costs and improve corporate performance. Even without a carbon tax, energy management makes good sense.

Why is the Government of Canada bringing in a Carbon Tax?

Canada has made international commitments to reduce the greenhouse gases (GHGs) emitted in our country that are contributing to climate change. The Government of Canada has decided that the most efficient way to reduce GHG emissions is to place a price on them.

In Which Provinces will the Federal Carbon Tax apply?

The Government of Canada Carbon Tax will apply to residents and companies in New Brunswick, Manitoba, Ontario and Saskatchewan. The governments in these provinces do not have a price on GHG emissions.

How Much is the Federal Carbon Tax?

In 2019, GHG emissions will cost $20/T CO₂e (tonnes of carbon dioxide equivalent). The cost will reflect the amount of GHGs emitted from burning each fuel type. For example, $20/T CO₂e is approximately 4.6¢/liter of gasoline, 5.4¢/liter of diesel, 3¢/liter of propane, or 3.9¢/m3 of natural gas. These costs will increase by $10 each year until hitting $50/T in 2022. This tax comes into effect on April 1, 2019.

How will the Federal Carbon Tax be Levied?

There are two major components to the Federal Carbon Tax: a flat carbon tax and an Output-Based Pricing System (OBPS) for large emitters.

The Flat Carbon Tax

The flat carbon tax applies to those who emit less than 10,000 T CO₂e/year or are not on a government list of specified primary activities. If you emit less than 10,000 T CO₂e, you pay the tax, regardless of your primary activity status. If you emit more than 10,000 T CO₂e, but don’t have the right primary activity, you also pay the tax. Those emitters will be billed a flat carbon tax by their energy suppliers. This is the default position for most GHG emitting organizations.

Certain energy-intensive industries such as fishing, farming and greenhouses have many entities that emit under 10,000 T CO₂e/year. The Federal Carbon Tax program has specific exemptions designed to help those smaller businesses mitigate the cost impact of the flat carbon tax. Industry association representatives are good contacts to have. They should be able to explain the specific options for your business.

The Output-Based Pricing System (OBPS)

The second component applies to any site that both emits 10,000 T CO₂e /year or more and has a specified primary activity. Any site with more than 10,000 T CO₂e/year is already required to report its emissions annually to Environment Canada. Sites which meet this threshold and also have a specified primary activity may chose to voluntarily participate in the OBPS which came into effect on January 1, 2019.   

Sites which both emit 50,000 T CO₂e /year or more and also have a specified primary activity are required to register their site under the OBPS before April 1.

It is particularly important that a company knows its GHG emissions under the Federal Output-Based Pricing System. The OBPS considers site-by-site emissions, and each site’s primary activity.

Sites which participate in the OBPS with the Canadian Revenue Agency get an exemption certificate which they provide to their local energy suppliers. They are then exempt from the carbon tax costs passed through to them by their suppliers. The company will receive credits based on their activities and the emissions standards associated with those activities. At the end of the year, the company’s total amount of credits and emissions are compared. If the site emissions exceed the credits, they pay the difference at the carbon tax rate applicable for that year.   

This system is designed to make the tax more effective for industries that are emissions-intensive and to help them remain competitive with businesses in jurisdictions without a carbon tax.  The OBPS, even with these exemptions, is intended to incent the implementation of energy efficiency improvements.

What Steps Should GHG Emitters be Taking?

The necessary first step is to know your site’s annual emissions – certainly for 2018 and for any earlier years. Know what is driving your emissions on a daily, monthly, and yearly basis. You will need these data to prepare for the incoming carbon tax.

Much of the new reporting process for the OBPS uses the existing Environment Canada reporting system. Most large energy consuming companies are likely already familiar with this system.

Knowing your energy use enables the setting of a baseline – the foundation for any energy management strategy. Actions to reduce GHG emissions can then follow. Options could include for example, implementing energy conservation measures, changing procurement practices or installing on-site generation. You then account for the avoided carbon tax costs by tracking, reporting and verifying the expected savings associated with emissions reductions.


Carbon costs for energy consumers in Manitoba, New Brunswick, Ontario and Saskatchewan are catching up to those elsewhere in Canada. Having a strategy to mitigate their impact on your utility bill is doable, smart and timely.

Take action to control your tax costs today. Energy management is the way.

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