Canada: Carbon Tax In The Northwest Territories: What You Need To Know

Last Updated: January 8 2019
Article by Mark Mielke

A carbon tax is coming to the Northwest Territories (the "NWT"). The Government of the Northwest Territories (the "GNWT") recently announced their plan to implement a made in the north NWT Carbon Tax designed and administered in the NWT in accordance with the federal government's Pan-Canadian Framework on Clean Growth and Climate Change (the "Federal Plan") to reduce carbon emissions by 2030.

The stated goal of the new NWT Carbon Tax is to incentivize behaviours to reduce greenhouse gas emissions while minimizing the adverse impacts the tax may have on the cost of living and the cost of doing business in the NWT.

Overall, the NWT uses more carbon for transportation, shipping and heating homes than many provinces in Canada. This will come to as no surprise to many residents who recognize that certain factors, such as the large size of the NWT, the remoteness of certain communities and the colder climate all require more expenditure on transport and heating than what would be required in some of the provinces. With these unique characteristics in mind, the NWT Carbon Tax has been designed to overcome some of the adverse effects a carbon tax would otherwise have in the NWT. This includes special provisions aimed at reducing the effect on the cost of living and the cost of doing business in the North including specific exemptions for aviation fuel and heating fuel.

The Pan-Canadian Framework on Clean Growth and Climate Change

In December 2016, the federal government released the Pan-Canadian Framework on Clean Growth and Climate. The Federal Plan is to set a national floor on carbon pricing beginning in January 2019. The Federal Plan allows provinces and territories to implement either a carbon tax or use another market mechanism, such as a cap-and-trade system. If a province or territory does not implement its own carbon tax, the Federal Government is proposing a federal carbon pricing option that will only apply in provinces or territories that do not have a system of their own.

Under the Federal Plan, provinces or territories that choose to implement their own carbon tax are required to set a national carbon floor price of $10/tonne in 2018 and increase the carbon tax to $50/tonne in 2022.

Similarly, for those provinces that choose to implement a cap-and-trade scheme, the scheme must keep emissions in line with Canada's 2030 commitment target of 30% below 2005 carbon emission levels.

As a signatory on the Pan-Canadian Framework on Clean Growth and Climate Change, the GNWT was faced with two options: follow the federal government's plan to impose a carbon tax in the NWT, or implement its own carbon tax, specially designed to address the diverse and unique needs of the NWT.

The GNWT decided to implement its own carbon tax legislation allowing for a customized approach to address the geography, climate and economy of the NWT.

The GNWT has stated that the NWT Carbon Tax aims to have a dual effect of reducing emissions and decreasing the cost of living in the NWT by 2022. This is expected to be accomplished by shifting to more renewable sources of energy which can be generated and consumed in the North.

Carbon Tax Roll Out

Beginning July 1st 2019, the GNWT will be implementing a carbon tax starting at $20/tonne of GHG emissions.  The NWT Carbon Tax is projected to increase to $50/tonne by 2022.

This works out to a NWT Carbon Tax of about 4.7 cents per litre of gasoline starting in July 2019 and increasing each year incrementally to reach 11.7 cents per litre of gasoline by 2022.

The tax will be charged directly on any fuel sold in the NWT.  It is estimated that the new NWT Carbon Tax will generate $16.3 million dollars in revenue for the GNWT within the first year. By the time it is fully implemented in 2020, it is predicted it will generate up to $54.5 million per year. However, the GNWT intends to return some of the revenue collected to the residents of the NWT via certain tax cuts and rebates.

The GNWT has estimated the cost of the carbon tax using data from Statistics Canada. They have estimated that that the average household will see a direct increase in the cost of living of approximately $225 per year, with the majority of these direct costs relating to the increased costs of gasoline.

Despite certain rebates in place, the government foresees the total cost of living increase for the average family to be about $350 per year when the carbon tax program is fully implemented in 2022.

In order to mitigate the increased costs from the NWT Carbon Tax, the GNWT has introduced the Cost of Living Offset rebate. It is intended to offset the impact of the NWT Carbon Tax and help address the overall cost of living in the NWT. When fully implemented, the Cost of Living Offset is expected to provide $260 per person age 18 and over and $300 per child to help offset the increased cost of living and doing business in the North.

Rebates, Exemptions and Energy Initiatives

The NWT Carbon Tax contains certain rebates, exemptions and new energy initiatives designed specifically for the north including:

  • Exclusion on Aviation Fuel: The NWT Carbon Tax will not apply to aviation fuel. Given the size of the NWT and the reliance of remote communities on air travel for transport, supplies, and health care the GNWT has decided that aviation fuel will be exempt from the carbon tax.
  • 100% Rebate for Heating Fuels: NWT residence will receive reimbursement for all taxes paid on fuel used to heat their homes (includes diesel, propane, and natural gas). This rebate will be provided at the point of purchase.
  • Investment in Wind and Solar Alternatives: The GNWT has outlined a number of wind, solar and other green energy programs that it plans to invest in with the help of the Federal Government. The aim of these programs is to  reduce the NWT's reliance on fossil fuels. These projects include the Inuvik Wind Farm, the Fort Simpson LNG project, the Paulatuk Conventional Solar project, and the Wekweeti Conventional Solar project amongst other green energy investment opportunities in the North that have been identified in the plan.
  • Reductions for Large Polluters. Given the importance of the mining sector to the NWT economy, large emitters (those emitting over 50,000 kilotonnes or more of annual greenhouse gas emissions) will receive additional rebates under the NWT Carbon Tax. An annual rebate of 75% of the tax paid on fuels that are not used for transportation will be rebated to large polluters. The other 25% of the tax rebate to the large polluters will be held in separate trust accounts that can only be accessed by the large polluter for investments aimed at reducing their overall greenhouse gas emissions.

Challenges to the Pan-Canadian Framework on Clean Growth and Climate Change

The territorial government has publically stated that they do not want to have a carbon tax due to the high cost of living in the NWT. However, the government has said that it thinks that it is better to have a carbon tax made in the North, than have one applied by the Federal Government. This allows the GNWT the flexibility to design their own legislation to fit the unique needs of the NWT. If there was a change of direction carbon tax policy at the Federal Level, the GNWT has stated that it would consider repealing the tax.

Recently, the Government of Ontario launched a constitutional challenge to the Federal Governments Pan-Canadian Framework on Clean Growth and Climate Change, apparently planning to argue that the federal government does not have the constitutional authority to implement a carbon tax in the provinces and territories.  Ontario now joins Saskatchewan as the second province in Canada to challenge the federal government's carbon tax.

Even more recently, Premier Rachel Notley of Alberta pulled out of the Federal Plan after the Federal Court of Appeal quashed the federal government's approval of the Trans Mountain Pipeline.

However, notwithstanding the opposition, the NWT Carbon tax is ready to come into effect July 1, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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