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CANADIAN CARBON TAX & CREDITS - What is it? And How does it Affect Businesses?

What is a Carbon Tax, and how does it pertain to Canada?

Carbon tax is a tax levied on the carbon content of fossil fuels, with the goal of reducing greenhouse gas emissions and combating climate change. In Canada, a federal carbon tax was introduced in April 2019 and applies to four provinces: Ontario, Manitoba, Saskatchewan and New Brunswick. The tax applies to fuels such as gasoline, diesel, natural gas, propane and coal. The amount of the tax depends on the carbon content of the fuel and the amount of emissions produced when it is burned.

Revenue from the carbon tax is returned to individuals and businesses through rebates, with the aim of ensuring that the tax is revenue-neutral and does not hurt low-income households. Additionally, the revenue can also be used to invest in clean energy and other initiatives that reduce greenhouse gas emissions. The federal carbon tax is part of a larger effort by the Canadian government to reduce greenhouse gas emissions and transition to a low-carbon economy, and in Ontario, the issuance of carbon tax is estimated to bring in $2 billion in revenue by 2031. Currently, the prices of carbon tax as set by Ottawa, is currently $65.00 per tonne of CO2 emissions for the 2023 year, and will continue to climb by $15.00 each year until the price reaches $170.00 per tonne in 2030.

How will carbon tax affect Canadian businesses?

The carbon tax in Canada is expected to have an impact on Canadian businesses, although the specific effects will depend on various factors such as the type of business, the fuel sources it uses, and the products and services it provides. In general, businesses that rely heavily on fossil fuels for their energy needs are likely to be the most affected. For example, industries such as transportation, manufacturing, and construction may see higher fuel costs as a result of the carbon tax.

However, there are also opportunities for businesses to reduce their carbon footprint and save on costs. For instance, businesses can invest in energy efficiency measures, such as upgrading their buildings and equipment to reduce energy consumption. They can also switch to cleaner energy sources, such as electric vehicles, renewable energy, and natural gas.

Additionally, businesses can take advantage of the carbon tax revenue rebates to offset the increased costs. The rebates are designed to help small and medium-sized enterprises, and they can be used to offset the higher costs of fuel and other inputs. The rebates can also be used to invest in low-carbon technologies and initiatives that can help businesses reduce their carbon footprint and become more sustainable.

What can Canadian businesses do to reduce carbon tax?

There are several ways that Canadian businesses can reduce the impact of the carbon tax. Some of the most effective strategies include:

  1. Energy efficiency: Improving energy efficiency is one of the simplest and most effective ways for businesses to reduce their carbon footprint and lower their costs. This can include upgrading lighting and HVAC systems, using more efficient equipment, and sealing windows and doors to reduce air leaks.

  2. Switching to cleaner energy sources: Canadian businesses can also switch to cleaner energy sources, such as renewable energy and natural gas, to reduce their carbon footprint. This can include installing solar panels, wind turbines, or geothermal systems, or upgrading to electric vehicles and charging stations.

  3. Offsetting carbon emissions: Another option is to offset carbon emissions through programs such as carbon credits or tree planting initiatives. These programs allow businesses to invest in projects that reduce carbon emissions elsewhere, thereby mitigating their own impact.

  4. Encouraging sustainable practices: Businesses can also encourage their employees to adopt more sustainable practices, such as carpooling, telecommuting, or using public transportation. By setting an example and creating a culture of sustainability, businesses can further reduce their carbon footprint and promote positive change.

  5. Purchasing carbon offsets: Companies can purchase carbon offsets to offset their carbon footprint. This allows them to reduce the amount of carbon they emit without having to change the way they operate.

What are carbon credits?

Canadian carbon credits are units of greenhouse gas (GHG) emissions reductions that can be bought, sold, and traded on carbon markets. These credits represent the right to emit a certain amount of GHG emissions and are used as a tool for reducing GHG emissions in a cost-effective manner.

Carbon credits are generated through projects that reduce GHG emissions, such as renewable energy projects, energy efficiency upgrades, or carbon capture and storage projects. These projects generate carbon credits that can be sold to businesses and individuals who are looking to offset their GHG emissions.

For example, a business that is unable to reduce its GHG emissions through internal measures may purchase Canadian carbon credits from a renewable energy project in order to offset its emissions. This allows the business to meet its GHG reduction targets, while supporting the growth of the clean energy sector.

In addition to the voluntary carbon market, there are also regulated carbon markets, such as the cap-and-trade systems in Quebec and Ontario, where carbon credits are used to comply with government-imposed emissions reductions targets.

In other words, carbon credits offer businesses and individuals a way to reduce their carbon footprint and support the transition to a low-carbon economy. By purchasing carbon credits, they can offset their GHG emissions and contribute to the development of clean energy and other emissions-reducing projects.

How can you trade carbon credits in the market?

Canadian carbon credits can be traded on various carbon markets, both within Canada and internationally. The process of trading carbon credits typically involves the following steps:

  1. Identifying a carbon credit project: This can be done by researching various carbon credit projects available in the market, either through a broker or by contacting the project developer directly.

  2. Negotiating the terms of the sale: Once a carbon credit project has been identified, the buyer and the seller will negotiate the terms of the sale, including the price, the amount of credits to be purchased, and the delivery date.

  3. Entering into a contract: Once the terms of the sale have been agreed upon, the buyer and the seller will enter into a contract, outlining the terms and conditions of the sale. This contract may be legally binding and enforceable by a court of law.

  4. Transferring the carbon credits: The carbon credits are transferred from the seller to the buyer once the payment has been made. The transfer is usually done through a verified online platform or through a carbon credit registry.

  5. Monitoring and reporting: After the transfer of the carbon credits, both the buyer and the seller must monitor and report on the status of the credits to ensure that they are used for their intended purpose and that their validity is maintained.

It is important to note that there are specific regulations and requirements for trading Canadian carbon credits, including mandatory reporting and verification by third-party organizations. It is advisable to work with a reputable broker or carbon credit registry to ensure that the process is carried out in a transparent and compliant manner.

In conclusion, trading Canadian carbon credits is a cost-effective way for businesses and individuals to offset their GHG emissions and support the transition to a low-carbon economy. By following the steps outlined above, they can participate in the carbon market and contribute to the development of clean energy and emissions-reducing projects.


When the Greenhouse Gas Pollution Pricing Act was first introduced in 2018 by the federal government, it was initially opposed by several provinces, including Ontario. The issue of implementing carbon tax through this federal Act was eventually presented before the Supreme Court of Canada, where Chief Justice Richard Wagner said: "[Climate change is] a threat of the highest order to the country, and indeed the world. This context, on its own, provides some assurance that...Canada is not seeking to invoke the national concern doctrine too lightly. The undisputed existence of a threat to the future of humanity cannot be ignored". The court, in a 6-3 vote, ruled the Greenhouse Gas Pollution Pricing Act, and in effect carbon pricing, is legal.

Which essentially means... carbon tax is here to stay.

The content of this article is intended to provide a general guide to the subject matter and are intended for informational purposes only. The information does not constitute legal advice, an opinion on any issue, nor create a solicitor and client relationship.

We would be pleased to provide additional details or advice about specific situations if desired. Do not hesitate to contact us for more information.

For permission to republish this content, please contact Amskor Law at © 2023 Amskor Law Professional Corporation

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