Trudeau Caves on a New Carbon Tax for Home Heating Oil

Canada’s Prime Minister Justin Trudeau announced a three-year pause on a new carbon tax applied to home heating oil, which would have increased heating bills for 2.6 million people in Canada’s four eastern provinces if the tax went into effect. Canada has already implemented carbon taxes on many fossil fuels, which has contributed to inflation making many Canadians struggle financially. Currently, in Canada, a ton of carbon dioxide costs C$65 per metric ton, which is equal to about $47, but plans are to increase it to C$130 per metric ton, or $94, by 2030. The carbon tax is to help Canada achieve its climate goal to reduce carbon dioxide emissions by between 40 percent and 45 percent from 2005 levels by 2030 and reach net zero by 2050. Trudeau said the three-year pause on the carbon tax for home heating oil will give those people time to switch over to electric heat pumps. His push for more heat pumps helps China since it provides 40 percent of the world’s heat pump manufacturing.

Trudeau announced the tax pause after weeks of sinking poll numbers. His Liberal Party holds 24 of the 32 House of Commons seats in Atlantic Canada, and constituents had been complaining to lawmakers about higher costs. A recent survey found that 18 percent of Canadians want the carbon tax to be reduced, 37 percent want it gone altogether, 27 percent were okay with it as is, and just 18 percent were okay with the government’s policy of raising the price of carbon dioxide every year. The average Canadian is currently paying about 14 cents of carbon tax Canadian on every liter of gasoline, and 17 cents Canadian for every liter of diesel. This is over 38 cents per gallon for gasoline, and over 47 cents per gallon on diesel. And these are in addition to Canada’s already-high fuel taxes. The carbon tax rate rises automatically every April 1, adding roughly another three cents Canadian per liter (8.3 cents per gallon) each year.

Many Canadians were amazed at Trudeau’s decision to pause the tax since only three days prior to the decision, the government alleged that the carbon pricing system did not add to affordability challenges because the rebates for most households were larger than the carbon tax payments. Nonetheless, politicians rationalized the pause by comparing oil costs to natural gas costs for heating.  In Ontario, people using home heating oil pay on average $3,400 a year, while those using natural gas pay $900 a year. Therefore, oil is almost four times the cost of gas in Ontario for home heating. In Saskatchewan, the situation is similar with the cost of $1,400 for natural gas on a yearly basis compared to $4,500 for heating oil.

Now, several Canadian premiers are demanding the same exemption on fossil fuels used to heat their residents’ homes, indicating that a pause is essential to combat rising prices. “The federal government has decided that one part of Canada with one type of home heating is worthy of a carbon tax break, while those living elsewhere using another type of home heating do not,” said Alberta’s Premier Danielle Smith. Federal Conservative opposition leader Pierre Poilievre agrees and is calling for an exemption for all forms of heating. Manitoba Premier Wab Kinew added, “During this inflationary moment right now, people are suffering. The temperatures are getting colder. In light of that, we do think there should be similar consideration given to the people of Manitoba.” Kinew is the first person of First Nations heritage to be elected to run a Canadian province. In Saskatchewan, Premier Moe announced that SaskEnergy will stop collecting the carbon tax on natural gas as of January 1, 2024.

Canada’s carbon tax has two levels: one for consumers when they pay for fuel and another for industrial emitters based on their output. Industry makes up about 40 percent of Canada’s emissions. Trudeau’s carbon tax pause for home heating oil has created climate policy chaos because expectations are that other fuels will also be granted a pause. Companies planning billions of dollars of clean technology investments, however, need policy certainty, including policies on carbon pricing. These companies, however, would not be spending the money on these technologies if it were not for the Canadian government’s mandates, taxes and regulations.

Extension of Carbon Tax Pause Fails in the House

Conservative Leader Pierre Poilievre filed a non-binding motion calling on Prime Minister Justin Trudeau to extend the carbon tax pause on home heating oil to all forms of home heating. The motion, however, failed to pass the legislature. The Bloc Quebecois and Green MPs sided with the Liberal caucus in voting to defeat the proposal. The motion was defeated 186 to 135. While the motion would not have forced the federal government to change its carbon tax policy, had it secured the backing of the Bloc, it could have become a political pressure point by allowing the opposition parties to note that the majority of the House wanted the Liberals to act.

Conclusion

Trudeau’s pause on the carbon tax for home heating oil, which affects about 3 percent of Canadians, will increase the pressure to exempt other fuels from the carbon tax despite the recent failure of the legislature to pass a non-binding motion. Trudeau has ruled out any further exemptions despite calls by the provincial premiers to extend the exemption to natural gas, which would allow the whole country to benefit. Nevertheless, many believe Canada’s carbon tax has been undermined by the pause on home heating oil as it weakens carbon tax incentives nationwide, even for non-exempt fuels.