Ottawa has yet to pay carbon-pricing rebates to small businesses, but says they’re coming

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Ottawa says it still intends to give billions of dollars to small businesses in carbon-pricing rebates that it has been promising for years, but business groups say the process has been far too slow.

The federal carbon-pricing system is supposed to be revenue-neutral, with the higher cost of emissions-generating activities offset by rebates.

But while the program for returning money to individuals – which Ottawa calls climate action incentive payments – has been up and running for years, a similar program for businesses has never properly gotten off the ground.

The issue is growing more pressing for businesses after the federal carbon price increased to $65 a tonne on April 1 in Ontario, Manitoba, Saskatchewan, Alberta, Yukon and Nunavut.

The federal environment commissioner, who is part of the Auditor-General of Canada’s office, called out the imbalance in a report last year, saying small and medium-sized enterprises were “disproportionately burdened” by carbon pricing.

And yet, business groups say, Ottawa is moving very slowly to fix the problem.

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Dan Kelly, president of the Canadian Federation of Independent Business, said the delays have meant that businesses are, in essence, paying for the rebates sent to individuals.

“This is a pure revenue transfer from small and medium-sized businesses over to consumers more broadly,” he said. “That’s not what this tax was intended to do.”

Michael Bernstein, executive director of the non-profit group Clean Prosperity, said businesses are contributing an estimated 25 per cent to 35 per cent of the total revenue generated by the carbon price.

He said that, in theory, businesses can make up the difference by raising their prices to include the carbon taxes so that consumers end up compensating them for that. But in practice that is hard to make work, and especially difficult in the current high inflationary environment, where lots of costs are going up.

“Businesses don’t perfectly pass on costs and it takes some time,” Mr. Bernstein said.

Scott Ross, co-chair of the Agriculture Carbon Alliance, said that has been a particular concern for the agri-food industry.

“One of the realities that the farming industry in general faces … is they’re operating in global commodity markets and they’re price takers,” he said. “So they don’t have the ability to pass on additional costs, like carbon surcharges, into the market.”

The federal government has attempted to compensate small and medium-sized businesses before. The environment department was set to hand out $218-million in compensation through the Climate Action Incentive Fund in the 2019-20 and 2020-21 fiscal years. But the environment commissioner found only $95-million – or 44 per cent – of the payments were sent out before the program was wound down.

The department said it was “looking at other options to deliver these funds,” the environment commissioner’s report said. “In our view, due to the issues encountered in delivering the funding, the department had not addressed the burden from carbon pricing faced by small and medium‑sized enterprises.”

In November, the federal government announced it would pay out more than $2.5-billion in carbon-pricing compensation to small businesses to cover the 2019-20 through 2023-24 fiscal years. However, details of the payments have still not been released.

Samuel Lafontaine, a spokesperson for Environment and Climate Change Canada, said the department was in the process of hiring organizations in Alberta, Manitoba, Ontario and Saskatchewan to organize the payments. He said the department planned to hire those organizations by the fall of 2023, with payments to small businesses “beginning shortly thereafter.” He said details of compensations in the four Atlantic Provinces – which will join the federal carbon-pricing plan in July – will come in “due course.”

Mr. Ross said the agricultural sector has been particularly affected by the carbon price.

His alliance, which is made up of 15 groups including the Canadian Federation of Agriculture and the Canadian Cattle Association, has been supporting Bill C-234, a private member’s bill that expands the types of machines and fuel that would be exempt from the carbon price.

The bill was introduced by Conservative member of Parliament Ben Lobb and passed the House of Commons last week with the support of all Conservative, NDP and Bloc Québécois MPs. Three Liberals voted in favour, and 145 voted against.