A carbon tax is a tax levied on consumers who use fossil fuels or emit greenhouse gases. Putting a price on carbon pollution is widely recognized as the most efficient means to reduce greenhouse gas emissions while also driving innovation.
The Canadian government passed the Greenhouse Gas Pollution Pricing Act in the year 2018 which introduced the system of carbon taxes. According to this Act, those provinces where the carbon tax system was absent must either adhere to the federal rules or devise their own systems for carbon tax which follow the federal rules. This Act was enacted to fulfil Canada’s obligations to the Paris Agreement.
Federal Carbon Pricing Approach and Backstop System: Federal backstop system is applicable to the emission sources which are not covered by the provincial rules. The federal pricing system has two parts:
- The first part of the carbon tax consists of the federal fuel charge, which is the regulatory charge levied on fuel and the imposition of federal and provincial charges on the sale of petroleum products.
- The second part is the federal Output- Based Pricing System (OBPS), which is a regulatory trading system for industries.
Currently the provinces covered under the federal backstop system are: Prince Edward Island, Alberta, Saskatchewan, and Ontario.