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The federal government is increasing the rural rebate on carbon pricing and exempting home heating oil from the levy, in a significant rollback to Prime Minister Justin Trudeau’s marquee climate policy.

Mr. Trudeau announced the softened rules, which apply to the Prairie provinces, Ontario and Atlantic Canada, late Thursday on Parliament Hill.

He said Ottawa will also pilot a new rebate program in Atlantic Canada that will entirely cover the costs for lower-income households to switch to heat pumps.

Rather than undermining his government’s climate policy, the Prime Minister said the changes are “actually enhancing” it by speeding up the transition to heat pumps.

“We are nothing if not a government that listens to people,” Mr. Trudeau said, adding the policy changes “leaves everyone better off.”

What to know about Trudeau’s carbon pricing system and the Atlantic exemption

The reversal falls only a year after the government voted against a Conservative motion to remove carbon pricing from home heating fuel.

There has been a significant backlash against the levy in Atlantic Canada. Federal carbon pricing took effect on the East Coast in July. Since then, local MPs have received an earful about the higher costs. Opinion polling shows the Conservatives have gained a double-digit lead over the Liberals in the region.

But while the change was welcomed for giving some reprieve to certain households, the Liberals were accused by Western premiers, and the NDP of regional favouritism. Atlantic Premiers said it didn’t go far enough.

Conservative Leader Pierre Poilievre noted that the timing of the changes mean the carbon levy will be reintroduced on home heating oil only after the next election.

The carbon pricing carve-out was largely criticized by climate groups. The government-funded Canadian Climate Institute warned that the change brings uncertainty to federal climate policy and dilutes the effectiveness of the carbon levy.

The government did not release cost breakdowns for the changes. Mr. Trudeau said the rural rebate increase is within the “existing envelope” of revenues from the levy and suggested the additional cash for households will mean less money for businesses.

He also said the changes would not affect Canada’s overall emissions targets. The government did not release updated emissions projections Thursday.

The exemption on home heating oil will take effect in two weeks. It will be in place for more than three years and will apply strictly to oil used for heating homes or buildings, meaning businesses will also benefit from the carve-out.

The government is not making a similar exemption for any other fuels used for heating, so people who use natural gas to heat their homes will still have to pay the carbon levy.

Asked about the discrepancy, Mr. Trudeau said the government wanted to focus on “low-hanging fruits.” He said home heating oil is worse for the environment, so the government is putting more emphasis on the transition from oil to heat pumps.

The carbon tax will be reimposed on home heating oil on April 1, 2027.

That fuel is disproportionately used in Atlantic Canada, with about 30 per cent of homes relying on it – meaning that region will also benefit most from the change. In addition to the Atlantic provinces, federal carbon pricing applies to people in Alberta, Saskatchewan, Manitoba and Ontario.

In a social-media post, Saskatchewan Premier Scott Moe noted that the change will do less to address affordability in his province, where he said 90 per cent of homes are heated with natural gas.

Alberta Premier Danielle Smith, applauded the “well-deserved break” for those on the East Coast, but said she is disturbed it’s not being applied universally to home heating fuels.

The second federal policy change will apply to Canadians living in rural areas. Starting in April, 2024, the government will increase the rural carbon levy rebate top-up from 10 per cent to 20 per cent.

What the change will mean for the rebates – which Ottawa calls climate action incentive payments – will only be clear when the government releases the 2024-25 rebate schedule next year.

However, because home heating oil is being exempted from the carbon levy, Mr. Trudeau said that overall revenues from the levy will be lower in places like Nova Scotia, which will also lead to a smaller rebate next year.

At the same time, he said the expanded rural rebate will mean less for businesses that were also expecting to receive money back from the carbon levy they have paid.

“In every policy, we have to make choices,” Mr. Trudeau said.

Last year, the federal environment commissioner said small businesses were “disproportionately burdened” by carbon pricing.

The Prime Minister told reporters there would be technical briefings on the details. None were provided Thursday.

Both Nova Scotia and New Brunswick repeated their calls on Thursday for the carbon price to be removed altogether.

“For years, the Liberals told us the carbon tax on heating oil did not make life unaffordable. But now they pause their tax on heating oil to make life more affordable?” wrote N.B. Premier Blaine Higgs on social media.

Newfoundland and Labrador Premier Andrew Furey said he was glad Ottawa made some of the changes he had asked for, calling it a “good day for our province.”

The government is also enhancing its program that gives incentives to people who switch to electric heat pumps. The national program will only be increased on a pilot basis in Atlantic Canada.

The joint rebate from the federal and provincial governments will now cover the entire cost of installing a heat pump for every household that is at or below the median household income, Mr. Trudeau said.

Low and median-income households that sign up to switch from oil to a heat pump will also be given an upfront payment of $250.

Mr. Trudeau said the changes were made because the price signal from the carbon levy was not enough to outweigh the upfront costs of switching to heat pumps.

The government announced the change just before the Conservative Leader took the stage at an “axe the tax rally” in Windsor, N.S.

“He wants you to elect him one more time, so that if he wins, he will bring in a massive tax on your heat,” Mr. Poilievre said.

The NDP issued a statement saying the government should also remove the GST from all home heating fuels and expand the heat-pump pilot program beyond Atlantic Canada.

“The Liberals seem to be hand-picking who they help based on their own political interests, leaving families in Northern Ontario, Alberta and other parts of the country behind,” the party said.

Editor’s note: A previous version of this article stated incorrectly that all Canadians living in rural areas will see an increase in the rural carbon levy rebate top-up starting in April, 2024. British Columbians will be excluded because a provincial carbon price system applies in BC. This version has been updated.

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