Cancellation of the consumer carbon price comes with the Canadian government’s affirmation that tax credits and other incentives for reducing greenhouse gas (GHG) emissions from buildings remain in place. A newly enacted federal regulation resets the carbon-related surcharge on fossil fuels to $0.00 per tonne of carbon dioxide equivalent (CO₂e) as of April 1, 2025, but continues the output-based pricing system for large industrial players that emit more than 50,000 tonnes (50 kilotonnes) of CO₂e annually.

The latter group has been subject to the same pricing trajectory as household and commercial consumers paying the fuel charge, but it is applied as a per-tonne rate on emissions that exceed a prescribed limit. This is slated to rise to $95 per tonne of subject CO₂e emissions next month, while accompanying analysis with the new regulation indicates further adjustments will be considered to “refocus” carbon pricing in the future.

“In the absence of the fuel charge, other measures will continue to incentivize emissions reductions,” the regulatory analysis states. “The federal government intends to strengthen Canada’s approach to carbon pricing for industry to ensure its continued effectiveness and continue to make progress on climate targets.”

An estimated 12.57 megatonnes (Mt) of emissions reductions projected to be attributable to consumer carbon price between 2025 and 2030 will now be foregone. However, the regulatory analysis cites a combination of other government policies that could offset that loss so that it amounts to just a 3 Mt setback. Those counterbalancing factors include the clean fuel regulations, mandates for zero-emissions vehicles and the package of initiatives known as the green buildings strategy.

“There are now a suite of different emissions reduction policies, and removing the fuel charge now would have a smaller impact on emissions compared to when it was introduced,” the regulatory analysis declares. “There are now other policies covering the same emissions sources that will take on a larger role if the fuel charge is eliminated.”

Alternative channels for emissions reduction

In particular, the clean fuel regulations, which have been projected to curb national GHG emissions by up to 26 Mt by 2030, are identified as a foil for potential backsliding in consumer behaviour. Since 2023, producers and importers of liquid fossil fuels (gas and diesel) must meet mandated thresholds for reducing the carbon intensity of product sold in Canada.

These requirements are designed to become more stringent on a yearly basis to progress toward the goal of reducing the combined emissions from extracting, refining, distributing and using the fuels by 15 per cent, relative to 2016 levels, by 2030. That began with a stipulated reduction of 3.5 grams of CO₂e per megajoule (MJ) in 2023, with an additional 1.5 gram improvement mandated each year until a 14-gram CO₂e/MJ reduction is achieved in 2030.

That’s envisioned to be accomplished through a credit market, in which each credit represents a 1-tonne CO₂e reduction. Fuel suppliers subject to the regulations can create credits or purchase them from a verified source in three categories of investment:

• reductions in lifecycle carbon intensity through projects such as carbon capture and storage, on-site renewable generation or co-processing:
• low-carbon-intensity fuels such as ethanol and biodiesel; and
• fuel/energy for advanced vehicle technology such as electric vehicles or hydrogen-fueled vehicles.

Government analysts hypothesize that an uptick in fossil fuel consumption on household and commercial consumers’ part would force regulated fuel suppliers to make corresponding adjustments. Higher fuel demand and/or a diminished market for lower-carbon fuel blends would increase suppliers’ compliance obligations and create more pressure on the availability and price of clean fuel credits. The pass-through of those costs would then encourage a consumer pullback, while also spurring more investment in clean energy development and innovation.

“Higher CFR (clean fuel regulation) credit prices induce some additional emissions reductions across sectors that create CFR credits,” the regulatory analysis maintains.

Canada’s electric vehicle availability standard, which will begin to roll out with the 2026 model year, is another identified brake on fossil fuel consumption. Automobile manufacturers and importers will initially be required to meet a target for light-duty (sedans, SUVs and small trucks) EVs to account for 20 per cent of new sales, which will steadily rise to 60 per cent of new sales by 2030.

“This significantly limits the national emissions impact of eliminating the fuel charge,” the regulatory analysis reasons.

Green buildings strategy limbo

The ameliorating impact of the green buildings strategy is not so straightforward. Removal of the consumer carbon price is expected to lower the short-term economic cost of fossil fuels in all Canadian provinces and territories except Quebec, where a cap-and-trade system is still in place. The regulatory analysis acknowledges this could undermine originally projected emissions reductions, “mostly related to the slower adoption of technologies which reduce emissions from natural gas used for home heating”.

In the commercial/institutional buildings sector, retrofit project proponents have commonly factored a carbon price set to rise to $170/tonne CO₂e by 2030 into their payback assumptions and business cases for decarbonization. The regulatory analysis does not contemplate what the absence of that driver could mean.

However, the green buildings strategy is specifically identified as one of the “complementary climate mitigation policies” within the overarching climate plan, and there are hints that further refinements could be coming. “The environmental impacts of the amending regulations may be mitigated by other future climate policies implemented in place of the fuel charge,” the regulatory analysis states.

Buildings sector insiders have plenty of ideas on that front. A recent joint publication from the Real Property Association of Canada (REALPAC), the Canada Green Building Council (CAGBC) and the University of Ottawa’s Smart Prosperity Institute explores how widescale decarbonization projects, in keeping with Canada’s emissions reduction targets, can be practically justified, funded and delivered. That identifies some pressing needs for cost-competitive technology, amenable financing and supportive public policy, and includes a list of enabling mechanisms that government, other key institutions and industry service providers could contribute.

Governments at all levels are urged to:

• provide incentives, tax credits, favourable financing and loan backing for both the buildings sector and technology developers;
• invest in enabling infrastructure, such as the smart electricity grid;
• find ways to make public utility data more straightforwardly available; and
• work to harmonize standards so that environmental performance ratings and labelling have consistent nationwide meaning.

“The portion of the carbon price that consumers pay at the pump or point-of-sale is getting dropped, but the carbon pricing model still holds,” reiterates Bala Gnanam, vice president, sustainability, advocacy and stakeholder relations, with the Building Owners and Managers Association (BOMA) of Canada. “Now there needs to be a combination of other tools to take the place of the fuel charge so that we are still on track to meeting our targets.”

Accelerated regulatory process

The new regulation is discordant with conventional Canadian government practice in that it was not published as a proposed draft for public consultation. This is described as necessary to meet the government’s objective to remove the fuel charge on April 1.

The regulatory analysis relies on the Ministry of Environment and Climate Change Canada’s modelling program, known as EC-PRO, to estimate how the cancellation of the consumer carbon price will affect previously projected emissions reductions and related economic outcomes.

As well, it notes the possibility that some households and businesses will realize net economic gains from the elimination of the fuel charge, while others will be disadvantaged through the loss of the Canada carbon rebate. The latter scenario will be most prevalent among low-income households and qualifying small businesses with fewer than 500 employees that “had a relatively high number of employees and used relatively low amounts of fossil fuels.”

The regulatory analysis also clarifies that not all costs have been considered.

“In addition to reducing carbon emissions, the federal fuel charge could lower air pollutants that harm health and ecosystems,” it observes. “Removing the fuel charge could therefore result in environmental and health costs, which are difficult to quantify and not included in this analysis.”