5.4 Federal policies


Main targets and incentives

GHG emissions reduction

  • -40-45% by 2030 (2005)
  • Net-zero by 2050
  • -40% by 2030 (2005) for government operations

Carbon pricing

  • Federal tax on fuel emissions and output-based pricing for industrial emitters, unless provincial equivalent exists

Renewable energy targets

  • 90% non-emitting electricity sources by 2030
  • 100% clean power in government buildings by 2025

Coal phase-out

  • Yes, by 2030 (with some exceptions due to equivalency agreements)

Low-emission vehicles incentives and renewable fuel mandates

  • Cash rebates for low-emission vehicle purchase or leasing ($2,500-$5,000)
  • Renewable fuel mandates (5% gasoline, 2% diesel)
  • Clean Fuel Standard planned for 2022


  • Reduction of methane emissions by 40-45% by 2025

Shortly after Canada’s Liberal government was elected in the fall of 2015, it signed the Paris Agreement and presented a series of plans to achieve GHG emission reduction targets. During its first mandate, the main medium-term target remained a 30% reduction in emissions over 2005 levels by 2030. Scenarios set out in communications to the United Nations Framework Convention on Climate Change then described a 2050 target of -80% as well. After a 2019 election campaign pledge to implement a 2050 net-zero target, the government presented its new climate policy strategy formalizing the target in December of 2020. Subsequently, at an international meeting led by US President Joseph Biden, the Canadian Prime Minister announced more aggressive GHG reduction objectives for 2030, mentioning a 40% to 45% reduction, but providing few additional details.

5.4.1 A price on carbon

Most of the pre-2020 announcements fall under the umbrella of the Pan-Canadian Framework on Clean Growth and Climate Change (PCF). The most high-profile measure under this framework is arguably the carbon pricing system legislated in the Greenhouse Gas Pollution Pricing Act, which imposes minimum requirements on provinces to implement an explicit price-based system (e.g., a carbon tax or levy) or a cap-and-trade system. If the federal government were to find a province’s proposal that did not meet these minimum standards (both in coverage and in price levels), it committed to imposing a “backstop” option in the provinces that elected not to set up their own program or comply with the requirements.

Two elements comprise this “backstop” carbon-pricing system: 

  1. A charge on fossil fuels—paid by fuel producers and distributors, starting at $20/tonne of CO2e in 2019 and rising to $50/tonne of CO2e in 2022 by $10 yearly increments;
  2. An output-based pricing system, applied only to industrial facilities with high emissions levels (>50,000 tCO2e), the strategy the government presented in late 2020 included a new schedule for increases of $15/year in the rate of the fuel levy, rising progressively to $170/tonne in 2030. 

In the output-based pricing system, the facilities covered will be evaluated in relation to an emission standard for their activity sector. The federal government will issue surplus credits to facilities emitting less than this standard, while those emitting above the standard will be required to submit government-issued credits, submit eligible offset credits or pay a carbon charge (set at the same level as the above-described charge on fossil fuel). 

Emission sources covered include fuel combustion, industrial processes, flaring, and some venting and fugitive sources, excluding methane venting and fugitive methane emissions from oil and gas facilities. Revenues from the proceeds are sent back to the jurisdiction of origin (Canada 2018a, 2018b, 2018c). 

5.4.2 Transport sector: taxes, incentives and regulations

The Canadian government’s approach to transport sector emissions is multifold. First, it imposes several taxes on fuel consumption, including a $0.10 tax on gasoline and a $0.04 tax on diesel. It also imposes an excise tax on the purchase of fuel-inefficient vehicles. 

Second, it has launched a program to electrify the sector. One part of the program gives purchase incentives for battery-electric, hydrogen fuel cell, or longer-range plug-in hybrids ($5,000), as well as for shorter-range plug-in hybrid purchases or leases ($2,500). This initiative is in addition to the Zero Emission Vehicle Infrastructure Program, intended to deploy a network of zero-emission vehicle charging and refuelling stations.

The third transportation program is the development of the Clean Fuel Standard, which aims to reduce the carbon footprints of fuel suppliers by using a lifecycle approach. The measure is intended to avoid favouring specific fuels, as is the case for instance with current biofuels mandates. Regulations for the Clean Fuel Standard are scheduled to be completed in 2021 and come into force in 2022 for liquid fuels and by 2023 for classes of solid fuels.

5.4.3 Coal phase-out 

In 2018, the Government of Canada also released regulations outlining a coal phase-out in the electricity sector by 2030. The phase-out is intended to help Canada reach its target of 90% emissions-free electricity generation by 2030. A Coal Transition Initiative, which has a $35 million budget over five years, is used to help communities become less reliant on coal. Furthermore, GHG regulations for natural gas-fired electricity will be published to complement the coal phase-out.

5.4.4 “Green/Clean growth”

Under the PCF, the Low-carbon Economy Fund commits $2 billion to help support projects that generate green growth, reduce GHG emissions and help meet or exceed Canada’s Paris Agreement commitments. The fund has two components: the Low Carbon Economy Leadership Fund, which provides $1.4 billion to provinces and territories to help them achieve their GHG reduction commitments; and the Low Carbon Economy Challenge, which uses the rest of the funds to finance innovations that “leverage Canadian ingenuity to reduce greenhouse gas emissions and generation clean growth in support of Canada’s clean growth and climate action plan (the PCF)” (Canada 2020). Eligible applicants for the Low Carbon Economy Challenge include provinces and territories, municipalities, Indigenous communities and organizations, businesses, and not-for-profit organizations.

5.4.5 Exemplarity

Presented in 2017, the Greening Government Strategy sets targets for GHG emissions reductions for government operations at 40% by 2030 and 80% by 2050 (with 2005 as the baseline). The strategy’s main tools to achieve these targets are repairs and retrofits to government buildings, as well as investments in transforming the government vehicle fleet to low-emission vehicles.

5.4.6 Methane

In addition, the government released regulations for methane emissions, with the aim of achieving 40%-45% reductions before 2025, as well as for outlining a new schedule for the reduction of HFCs. Equivalency agreements respecting these regulations have been reached with British Columbia, Alberta and Saskatchewan. The Canadian government also published its fourth Federal Sustainable Development Strategy (2019-2022), which established goals linked to the United Nations Sustainable Development Goals.

5.4.7 Implementation

A closer look at the implementation of these policies and announcements is essential to provide an assessment of the current state of affairs. First, as Table 5.1 shows, four provinces and the Northwest Territories have systems that fully comply with federal requirements; Ontario, Manitoba, the Yukon and Nunavut make full use of the federal “backstop,” although Ontario will put its system for industrial emitters in place shortly. The remaining four provinces have a mixed system, with New Brunswick also planning to introduce its provincial system for industrial emitters shortly. Manitoba had proposed a provincial system for the fuel levy, which was shelved in 2020. Prince Edward Island has a provincial tax on fuel purchases, while the federal system applies to industrial emitters. Finally, Alberta has a provincial system for industrial emitters and the federal “backstop” applies as the carbon tax. 

Two issues are worthy of note in assessing the impact of the federal carbon pricing policy. First, over the past two years, there have been three formal challenges to the constitutionality of the federal program. Saskatchewan and Ontario both lost in their respective courts, in contrast to Alberta, which won its challenge in early 2020. A further challenge by Manitoba was planned for 2020, but the Supreme Court settled the issue in its March 2021 decision (delayed due to COVID), essentially confirming the federal government’s position. 

The second carbon pricing issue relates to equivalency agreements between the federal government and provincial pricing policies. Quebec, notably, has so far successfully argued that its cap-and-trade program with California meets the federal requirements, a position with which the federal government has agreed. However, it is doubtful whether this equivalency will remain over the next decade if the price increase schedule proposed by the federal government is legislated (up to $170/tonne in 2030). 

Table 5.1 – Carbon pricing system by province or territory #

Prince Edward Island and New Brunswick have also signed equivalency agreements on carbon pricing. In both these cases, the province charges a tax that meets the federal requirements but decreases the provincial sales tax on fuel purchases to compensate for most of the financial impact on taxpayers. Although proponents of carbon pricing argue that this practice defeats the purpose of the tax by eliminating the financial incentive to reduce emissions, the federal government maintains that it sees benefits in tempering political opposition to carbon pricing. 

In addition to carbon pricing, equivalency agreements on coal phase-out in the electricity sector have been reached in two out of the four provinces still using coal (Alberta, Saskatchewan, New Brunswick and Nova Scotia), exempting them from the regulations. Saskatchewan, which has a CCUS installation at a coal-fired powerplant, successfully made the case that this should be factored into its meeting of the coal phase-out commitment; Nova Scotia set lower emission caps for its electricity sector as a whole, also committing to 50% of electricity coming from a renewable source by 2020.

5.4.8 Upcoming policies

The October 2019 election resulted in a minority government led by the Liberals. Opposition to climate policy during the campaign was mainly voiced by Conservative candidates and leadership. This position changed in early 2021 when the Conservative leadership largely embraced the general concept of carbon pricing, although with terms and conditions that differ from the plan in place.1 This new position provides some room to manoeuvre for the government to maintain the direction of the policies presented in its previous four-year mandate. 

The presentation of the new climate strategy in late 2020, the government’s introduction of Bill C-12 on net-zero governance,2 and the 2021 budget formalized the 2050 net-zero target, although details were not yet available on how the plan will be implemented at the time of writing.


1 Secure the environment. The Conservative plan to combat climate change. Conservative Party of Canada (2021). https://cpcassets.conservative.ca/wp-content/uploads/2021/04/15104504/24068610becf2561.pdf

2 BILL C-12, An Act respecting transparency and accountability in Canada’s efforts to achieve net-zero greenhouse gas emissions by the year 2050, https://parl.ca/DocumentViewer/en/43-2/bill/C-12/first-reading