The federal fuel charge is scheduled to take effect in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island as of July 1, 2023. The federal government recently announced that these provinces’ fuel charge systems will not meet the upcoming revised federal benchmarks for carbon pricing and will therefore be subject to the federal carbon pollution pricing backstop as of this date. As a result, fuel producers, fuel wholesalers, emitters and fuel distributors, as well as air, marine, rail and road carriers, and certain users, among others, will have to determine if they are required or permitted to register and prepare to meet the registration, reporting and compliance obligations that will soon apply under the federal rules.
As a result of the change, individual residents of these provinces will also be eligible to receive quarterly federal Climate Action Incentive payments starting July 2023, as long as they file their income tax returns.
The federal carbon pollution pricing backstop includes a fuel charge applied to fossil fuels, as well as an output-based pricing system for industrial facilities that emit greenhouse gases above a certain threshold. These rules, which were introduced in 2018, apply in provinces and territories that do not have carbon pricing systems that meet the federal benchmark.
The federal government announced an update to its carbon pricing benchmark in August 2021 that, among other changes, set out minimum national carbon pollution prices over the eight-year period beginning in 2023. The update provides for a minimum price per tonne of carbon dioxide equivalent of $65 in 2023, with further increases of $15 per tonne per year, to $170 per tonne in 2030. These benchmarks replace the 2018-2022 benchmarks and associated guidance. Provinces and territories had until September 30, 2022 to put forward a plan that met the revised benchmarks, or the federal system would apply. As a result, the federal fuel charge will continue to apply in Alberta, Saskatchewan, Manitoba, Ontario, Yukon and Nunavut. The government has confirmed that the proposed systems for British Columbia, Quebec, New Brunswick and the Northwest Territories each meet the updated federal benchmark, so that the federal backstop will not apply.
The federal government has confirmed that where the federal backstop applies in 2023 it will remain in place until at least the end of 2026. Subject to any major changes to the provincial and territorial systems, an interim assessment will be conducted by the federal government in 2026 to confirm that the provincial and territorial systems continue to meet the benchmark criteria.
For more information, contact your local KPMG adviser.
Information is current to December 5, 2022. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500