The heating oil exemption is nothing new. For good reason.

The Trudeau government’s announcement that home heating oil will be temporarily exempt from the carbon tax has led to legitimate policy debate and political bluster. 

But it should come as little surprise that the government employed a targeted strategy. For decades, similar approaches have been followed across Canada in economic development, infrastructure spending, climate and energy. 

But whereas the public might have previously shrugged off the exemption as a reasonable accommodation to a small group of end users — if they’d noticed at all — they are now paying close attention.

Two things appear to be different with the current carbon pricing debate: the direct potential compliance cost to consumers — currently $65 per tonne of CO2, rising to $170 by 2030 — and today’s tense political environment, particularly as it relates to climate policy. 

What is laid bare is that, however genuine Trudeau’s environmental ambitions (something now questioned in many corners following the heating oil announcement), his government has failed to adequately consider the broader environment into which the supporting regulations were released. 

The result is their decision has become the proverbial plug pulled from the dam, allowing a torrent of outcry on all things carbon tax. 

At this week’s Council of the Federation meetings in Halifax, the premiers appeared more united on the carbon tax than at any point since they began work on the Pan-Canadian Framework on Clean Growth and Climate Change following Trudeau’s election in 2015.  

Currently, British Columbia and Quebec are the only provinces outside the federal carbon tax system: B.C. has its own carbon tax which predates the federal system and Quebec is paired with California in a cap and trade program.

But this could change. The majority now want out.

The home heating exemption exposes the fallacy of a single, uniform national carbon pricing policy in a country as vast and diverse as Canada. Being the second largest country on the planet, it is unreasonable to act as though all regions have the same challenges and opportunities when it comes to improving the environmental performance of its component economies. 

Special allowances

Canada’s first national Renewable Fuels Regulations were introduced in 2010 and required five per cent renewable content in gasoline and two per cent in diesel, including home heating oil. While some provinces already had minimums for renewable content — such as those growing large quantities of corn for ethanol — the regulations established a national baseline with which all would have to comply. 

Or at least most. 

Either full exemptions or implementation delays were provided for the North, the Atlantic Provinces and Eastern Quebec. The government acknowledged that the availability of biofuels was limited in those regions, requiring them to be shipped in by rail or water, which meant higher transportation emissions. And blending and storage facilities needed to be constructed, which required significant investment and long lead times.

Ottawa made accommodations for those regions with steeper compliance curves to scale. And some provinces with agricultural sectors that stood to benefit from over-compliance with the federal minimums set higher standards. These were regional considerations.

In 2022, the Renewable Fuels Regulations were replaced by the Clean Fuels Regulations — sometimes referred to as the Clean Fuels Standard — which were designed to expand the number of fuels covered and increase their stringency. 

At the time of the regulations’ drafting, energy ministers from Atlantic Canada petitioned Ottawa to factor in regional considerations. They appealed for further study, delay and even exemption. Their requests were covered in the media at the time. But with the exception of Newfoundland and Labrador, they were not heeded. 

While the Clean Fuels Regulations are separate from the carbon tax, the ministers’ grounds for accommodation were similar to what had been historically considered valid and are now being used to justify changes to the carbon tax on heating oil.  

Were the Atlantic ministers writing to Ottawa with the same requests in today’s political environment, the outcome might have been different, and Trudeau’s current troubles lessened.

The history of making special allowances for targeted fuels or uses is long. At various times and in multiple locations relief has been provided for fuels used in agriculture, fisheries, electricity generation in remote areas and others. 

In fact, Environment and Climate Change Canada’s own materials on the carbon tax acknowledge that “Particular groups or sectors may require targeted support or relief, in particular because of the small number of alternative options they may have in the face of carbon pricing.” 

This language was practically tailored to describe home heating oil. But it was errantly disregarded. 

Critics will rightly say that the ways of the past have failed to deliver results on the scale needed to make meaningful progress on climate, necessitating new and more aggressive strategies. 

But the status and outlook of the carbon tax suggests the current approach may not yield sufficient results either. Legislators and regulators may be well-served by taking a few steps back before starting again, perhaps with the lessons of history and geography in mind.

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