Trudeau Liberals push pause on heating oil carbon tax

OTTAWA — The federal Liberals are increasing the carbon price rebate for rural Canadians and lifting the carbon price off home heating oil entirely for the next three years, as affordability concerns leave their party flailing in the polls in Atlantic Canada.

The announcement late Thursday afternoon marked the first time the Liberals have retreated in any way from their carbon pricing policy.

While the adjustments to that policy are to apply across the country, Prime Minister Justin Trudeau stood with most members of his Atlantic caucus as he announced the changes in Ottawa.

The four Atlantic provinces only started paying the federal carbon price in July, after provincial systems were deemed no longer strong enough to comply with federal standards.

At the same time, the federal government introduced a new clean fuel standard to offset emissions from gasoline and diesel, which saw the public utilities board that set gas prices in the Atlantic provinces raise prices as much as eight cents a litre.

The effects of both policies combined meant that gasoline alone went up 20 cents or more per litre in a matter of days on the East Coast.

Until July, home heating oil had also been exempted from the carbon price in those provinces.

About one-third of homes in Nova Scotia, New Brunswick, Newfoundland and Labrador and Prince Edward Island still use heating oil, a far higher proportion than in the rest of Canada.

Regional MPs have been lobbying Trudeau for months for relief, as the costs mounted in their ridings and voters grew increasingly angry about it.

In June, Ottawa rebuffed calls for relief on the climate policies. "Climate change won't wait," Environment Minister Steven Guilbeault said then.

But over the summer, there were clear signs the policies were harming the Liberals' political fortunes.

The governing party has plummeted in the polls in every region. It used to dominate in Atlantic Canada. Not anymore.

Trudeau denied that the decision announced Thursday was about saving Liberal seats — and many of the MPs standing behind him scoffed at the suggestion — but he did acknowledge that this was something voters wanted.

"We heard you," he said. "We heard our Atlantic MPs and we heard Atlantic Canadians. We heard it through conversations at the door, conversations with other orders of government."

The federal Liberals say taking the carbon price off home heating oil will save an average homeowner $250.

The carbon price is intended to make fossil fuels more expensive as an energy source to encourage people to find alternatives.

But Trudeau said it had become clear that wasn't happening when it came to heat pumps, in part because it takes time and money to make the switch. A carbon price that doesn't encourage fuel switching is ultimately just a tax with no climate benefit.

"To be blunt, the price signal on heating oil is not resulting in enough people being able to switch to electric heat pumps, despite people wanting to move to these cleaner home heating options," Trudeau said.

He insisted the change will not affect Canada's ability to lower its overall emissions, arguing that if it allows more people the time and money to install heat pumps, it will end up being better overall in the end.

The carbon price already comes with a rebate, which is issued every three months to offset the cost.

The idea is to keep most families from being worse off as a result of the carbon price, while still being able to save money by switching to lower-emitting energy sources and paying less carbon price. The rebate is not directly related to how much people actually pay in the carbon price, but is instead determined by the total amount of carbon price collected in each province.

Ninety per cent of those revenues are then divided among households based on the number of people in each family.

The other 10 per cent is supposed to be issued through various grant programs to small businesses, Indigenous communities, hospitals, municipalities and schools to help them invest in things that cut back on their fossil fuel use.

Acknowledging that rural Canadians often use more fuel than urban Canadians and may have fewer options, such as public transit, to curtail their fuel use, the rebates were already 10 per cent higher for households outside urban areas.

Next April, the government announced, that top-up will double to 20 per cent.

Trudeau said the top-up came out of the final 10 per cent of carbon price revenues, and the extra money will also come from there.

Small businesses have already been unhappy that while they pay the carbon price, too, most of the rebates go to individuals. This will leave an even smaller piece of the pie for them.

"In any policy, we have to make choices," Trudeau said.

"We have done an awful lot for small businesses over the years. We will continue to support them with initiatives that help them transform their businesses, that help them save energy, that continue to have them be competitive in a challenging time with inflation and interest rates where they are.

"But we heard very clearly from rural Canadians that they need more help right across the country, and that's why we're doubling the rural top-up to 20 per cent, because people in rural parts of the country don't have the same options that people living in big cities have."

Larger businesses and industries with major emissions pay carbon pricing through a separate system and are not included in this program.

Ottawa is also making heat pump incentives more appealing with a policy that is to begin as a pilot project in Atlantic provinces.

The government is offering an upfront payment of $250 for any low- and median-income households that sign up for a heat pump through the joint federal-provincial program, and increasing a grant for switching to heat pumps from a maximum of $10,000 to $15,000.

Trudeau said that should make installing a heat pump free for most lower-income households.

Trudeau's announcement came as Conservative Leader Pierre Poilievre, whose party is currently polling well into majority government territory, was holding a campaign-style rally in Windsor, N.S., on Thursday.

The rally was one of what Poilievre calls his "axe the tax" events, as he has advocated against the carbon price for years and promises to get rid of it if he is elected.

He immediately took credit for the Liberal change of heart.

"Last year, Trudeau voted against our motion to take his tax off home heating oil," Poilievre said on X, the platform previously known as Twitter.

"After plummeting in the polls and minutes before my axe the tax rally, he ... panicked and promised to delay his home heating oil tax until after the election. I will keep the heat on and take the tax off."

Former Environment Minister Catherine McKenna, who was in office when the carbon price was first introduced, appeared disheartened by the announcement.

"Politics will break your heart," she said on X.

This report by The Canadian Press was first published Oct. 26, 2023.

Note to readers: This is a corrected story. A previous version said the government will double the carbon price rebate for rural Canadians.