OPINION: Carney Government Should Scrap This Punitive Poorly-Constructed Trudeau-Era Policy

By Julio Mejía and Elmira Aliakbari

Recently, amid the tariff war and continued concerns about the cost of living, the Carney government extended the federal tax holiday on gasoline and diesel until January 2027. But if the Carney government wants to help reduce fuel costs in the long run, it should axe Ottawa’s so-called “Clean Fuel Regulations” (CFR) enacted by the Trudeau government in 2023.

To recap, the war in Iran and blockade of the Strait of Hormuz, which sees roughly one-fourth of global seaborne oil trade, led to a spike in oil prices. Between February and March alone, gasoline prices jumped 21.2 per cent, the largest monthly increase on record. In response, last April Ottawa suspended the federal excise tax on gasoline and diesel as an affordability measure, reducing prices by about 10 cents per litre for gasoline and 4 cents for diesel, then extended the suspension last week.

But the logic behind the tax break won’t disappear once the tax returns in 2027. If fuel affordability matters enough to justify temporary relief, it should matter enough to axe the CFR, which forces primary fuel suppliers (producers and importers) to reduce their “carbon intensity”—the emissions produced (per unit of energy the fuel generates) from extraction through production, distribution and use—by 15 per cent below 2016 levels by 2030. Fuel suppliers that fail to meet the targets must buy compliance credits, adding costs that will ultimately be passed on to Canadians.

In fact, according to a recent study by the Parliamentary Budget Officer (PBO), the CFR will increase fuel prices by up to 17 cents per litre for gasoline and 16 cents for diesel by 2030. And because Canadians use gasoline and diesel to transport food, medicine, construction materials, and other goods and services, those higher fuel prices will ripple through the economy, shrinking Canada’s economy by up to 0.3 per cent—or about $9.0 billion—in 2030.

But clearly, Canadians will face higher costs for gasoline and diesel, with some provinces bearing a much heavier burden than others. According to the PBO, the CFR will cost the average household an extra $1,157 per year in Alberta and $1,117 per year in Saskatchewan—two provinces who depend heavily on fossil fuels for freight transportation, agriculture, mining, oil and gas extraction and other industrial activities. The two provinces with the lowest median household incomes in Canada, Nova Scotia ($635) and Prince Edward Island ($569) will also get hit relatively hard, as will households in Ontario ($495).

In fact, the CFR imposes a heavier burden on lower-income households across the country, since they generally spend a larger share of their income on transportation and other energy-intensive goods and services including food. In other words, Ottawa’s CFR makes life more expensive for Canadians who already struggle with the cost of living.

Of course, proponents of the “Clean Fuel Regulations” point to the environmental benefits. But in reality, those benefits are remarkably small. The CFR is expected to cut greenhouse gas emissions by 26 million tonnes in 2030, which according to the federal government, equals roughly two weeks of emissions from the Canadian economy. But because Canada is only one source of global emissions, from a broader perspective, the expected reduction would represent about 0.04 per cent of projected global emissions in 2030. Lots of pain for little gain.

The Carney government’s extended tax holiday on gasoline and diesel will provide some relief at the pumps. But if the government wants to help increase long-term affordability for Canadians, it should eliminate the CFR, a punitive and poorly-constructed policy from the Trudeau era.

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