Budget 2025 locks in industrial carbon-tax regime, tightening grip on provinces

The Liberals’ 2025 budget maintains the consumer carbon tax at $0 while hiking and entrenching industrial carbon pricing as the cornerstone of Ottawa’s new climate agenda.

Source: Wikimedia Commons

The Liberals’ 2025 budget maintains the consumer carbon tax at $0 while hiking and entrenching industrial carbon pricing as the cornerstone of Ottawa’s new climate agenda. The plan keeps carbon costs rising for industry through 2050 and introduces new federal powers to compel long-term tax increases on emissions.

Budget 2025 outlines plans to “engage” with provinces on a multi-decade schedule of rising carbon taxes for large emitters, beginning with the existing rate of $80 per tonne and rising annually to $170 per tonne by 2030, with further increases to 2050 still to be determined.

Yet despite initial conciliatory language, Ottawa also intends to “promptly and transparently” force the federal carbon backstop whenever a provincial system is deemed insufficiently harsh, giving the federal government authority to reimpose its own pricing system on provinces that fall short of federal standards.

The change further tightens Ottawa’s control over provincial carbon pricing systems. While provinces such as Alberta, Saskatchewan and Newfoundland and Labrador run their own industrial programs, the federal government sets minimum pricing standards under the Greenhouse Gas Pollution Pricing Act.

Saskatchewan and Alberta have both announced plans to pause or delay future industrial carbon-tax increases, moves that could trigger Ottawa’s backstop under the new policy.

Additionally, the budget commits to new carbon contracts or financial guarantees through the Canada Growth Fund that compensate companies if future governments reduce the industrial carbon price. In practice, the program would offload the financial risk of carbon-policy changes from corporations to taxpayers.

Budget 2025 states that industrial carbon pricing will achieve “more emission reductions than any other policy, with negligible impacts on affordability.”

However, Environment Minister Steven Guilbeault has previously described the industrial carbon tax as the “backbone” of the government’s climate plan, while officials have testified that consumer carbon pricing contributes only a one-to-two per cent emissions cut compared with 2005 levels, leaving Canada short of its 2030 targets.

Industry leaders have noted that industrial costs are typically passed down the supply chain. Burlington steel plant owner Michael Schwenger said, “There’s a carbon tax on the cement we pay. There’s a carbon tax on the steel we produce … it makes it more expensive.”

On the consumer side, the budget records $4.2 billion in foregone revenue after Ottawa lowered the fuel-charge rate to zero on April 1 and began winding down the Canada Carbon Rebate. The Greenhouse Gas Pollution Pricing Act remains in force pending Bill C-4, which would formally repeal the charge. Guilbeault said the move “brings the price to zero” but “is not a removal,” while Conservative MP Michael Barrett noted the government “can’t unilaterally repeal legislation.”

In the budget, the Liberals repeatedly refer to the consumer carbon tax as “divisive,” even labelling it the “divisive consumer carbon tax” in tables.

The budget links industrial carbon pricing to new and extended subsidies. Ottawa’s Clean Economy Investment Tax Credits—covering carbon capture, hydrogen, clean technology, manufacturing and electricity—are contingent on a federal carbon price. The budget extends full carbon-capture credit rates to 2035, confirms the Clean Electricity Investment Credit and allows Crown utilities direct access.

Additional measures include final Clean Electricity Regulations, stricter methane limits for oil and gas and landfill operators, and amendments to the Canadian Environmental Protection Act to allow long-term agreements with provinces. The budget also says large-scale carbon-capture deployment could render the proposed oil and gas emissions cap “no longer required.”

Ottawa will spend $2 billion over five years on a Critical Minerals Sovereign Fund and $372 million on a First-and-Last-Mile Fund to develop resource and energy-infrastructure corridors. It expands the Critical Mineral Exploration Tax Credit to more minerals used in clean-energy manufacturing, programs that depend on a sustained industrial carbon-pricing framework.

Prime Minister Mark Carney has acknowledged that “the consumer is already paying more” as producers incorporate carbon-compliance costs into the prices of goods and energy, although he described the impact as “marginal.”

A previous Leger poll found that 70 per cent of Canadians believe that costs from the industrial carbon tax are passed directly to consumers.

The Canadian Taxpayers Federation criticized the Liberals’ $78.3-billion deficit for this year, which will see the debt balloon to $1.35 trillion by year-end.

“Carney’s hidden carbon tax will make it harder for Canadian businesses to compete and will push Canadian entrepreneurs to set up shop south of the border,” said CTF Federal Director Franco Terrazzano. “Carney should scrap all carbon taxes, cut spending and stop taking so much money from taxpayers.”