Mark Carney, the prime minister of Canada, recently signed an order to eliminate the consumer carbon tax or the "fuel charge." The new rule is effective April 1, 2025. This decision was one of Carney's first acts as prime minister, freeing Canadians from paying fuel taxes. 

Private market firms, asset managers, and impact investors with portfolio companies operating in Canada need to consider this decision carefully. It is expected to increase carbon pricing for businesses, potentially leading to increased operating costs for heavy emitters.

Let's explore the fuel charge in Canada in more detail. 

About the Consumer Carbon Tax

The Consumer Carbon Tax, or the fuel charge, was introduced in 2019 to charge prices on carbon for public and business consumption to incentivize emission reduction across Canada. It started at $20 per tonne in 2019 and has been increasing consistently yearly, expected to reach $170 per tonne by 2030. However, in a boardroom in front of the media, PM Mark Carney recently eliminated the fuel charge. 

"Based on the discussion we've had and consistent with a promise that I made and others supported during the (Liberal) leadership campaign, we will be eliminating the Canada fuel charge, the consumer fuel charge, immediately." - said Mark Carney, after signing the directive. 

Key aspects of the fuel charge elimination

• The federal consumer carbon tax rate will be set to 0%, effectively removing the charge on consumer purchases. However, output-based pricing systems for businesses and industries will remain in place to encourage technological adoption and emission reductions without harming competitiveness.
• The removal of fuel charges was driven by high consumer inflation and affordability concerns in the middle of the country's economic crisis. 
• The families who received carbon tax rebates under the federal program because of the consumer carbon tax in place will no longer receive these payments. 
• The elimination of the fuel charge follows Conservative Leader Pierre Poilievre's campaign against the carbon tax over the past months. Consumers are facing high inflation, and despite championing the carbon tax in his past record, Carney decided to cancel the tax.

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