Even as the consumer carbon tax no longer directly affects prices at the gas pump, Canadian motorists are still paying more due to another federal climate policy, according to the Canadian Taxpayers Federation (CTF).
The advocacy group says Ottawa’s Clean Fuel Regulations, introduced in July 2023, are quietly increasing fuel costs across the country. In a press release issued Jan. 15, the CTF described the policy as a “hidden carbon tax,” warning it could add as much as seven cents per litre to gasoline prices this year, with costs rising annually through 2030.
The Clean Fuel Regulations are separate from the carbon tax. They require fuel producers and importers to gradually reduce the carbon intensity of gasoline and diesel. Companies that cannot meet the targets must buy compliance credits, costs that are ultimately passed on to consumers, the CTF argues.
According to the Canadian Automobile Association (CAA), the national average gas price was about $1.25 per litre on Jan. 19. However, a 2023 report from the Parliamentary Budget Officer (PBO) projected that the Clean Fuel Regulations would increase gasoline prices by 17 cents per litre and diesel by 16 cents per litre by 2030, when the rules reach full stringency.
The PBO has also concluded that these added costs will flow down to households. Lower-income households are expected to face an average annual cost of $231, or 0.62 percent of disposable income, while higher-income households could see costs of about $1,008, or 0.35 percent of disposable income.
The CTF is calling on Prime Minister Mark Carney’s Liberal government to scrap the regulations, noting there are no rebates to offset the higher fuel prices. The Prime Minister’s Office did not respond to a request for comment before publication.
The federal government, however, maintains the policy is essential to Canada’s climate goals. In a statement, Ottawa said the regulations aim to “accelerate the use of clean technologies and fuels, and support sustainable jobs in a diversified economy.”
“Under the Clean Fuel Regulations, the gasoline and diesel Canadians use every day will become progressively cleaner over time and affordable alternatives will be increasingly available,” the government said.
Costs Vary by Province
The financial impact of the Clean Fuel Regulations is expected to vary widely across provinces. According to the PBO, households in Saskatchewan will face the highest costs by 2030 about $1,117 annually, or 0.87 percent of disposable income.
Alberta follows at $1,157 (0.80 percent), while Newfoundland and Labrador is projected at $850 (0.80 percent). The PBO attributed these higher costs to the greater fossil-fuel intensity of those provincial economies.
At the lower end, British Columbia households are expected to pay about $384 annually (0.28 percent), followed by Quebec at $436 (0.39 percent) and Ontario at $495 (0.35 percent).
Nationally, the PBO estimates the regulations could reduce Canada’s gross domestic product by 0.3 percent, or up to $9 billion, by 2030.
Conservative Leader Pierre Poilievre has labeled the policy “carbon tax 2.0,” arguing it is worsening the cost-of-living crisis. Ottawa has not commented directly on household costs but has said it will work with provinces and territories to support a “thriving, domestic low-carbon fuels industry.”
The Clean Fuel Regulations were developed by Environment and Climate Change Canada and are considered among the most complex rules the department has created. The system uses a credit-based approach, where one credit represents a reduction of one tonne of carbon dioxide equivalent.
Fuel suppliers can comply by investing in emissions-reduction projects such as carbon capture, supplying lower-carbon fuels like ethanol or biodiesel, or supporting advanced vehicle technologies.
The regulations were introduced under former Prime Minister Justin Trudeau as part of Canada’s plan to achieve net-zero emissions by 2050.
Last September, the Carney government announced it would pursue targeted amendments to strengthen the system’s resilience and boost domestic low-carbon fuel production. Options under consideration include requiring a minimum share of Canadian-produced low-carbon fuels or offering greater credit incentives for domestic production.
The federal government closed public consultations on the proposed amendments on Jan. 15 and is expected to publish draft changes in the Canada Gazette in the coming weeks. It has not indicated when or if additional changes might take effect.
