End of ‘carbon tax’ will lower price of gasoline, but not in Quebec

The withdrawal of the federal carbon tax, announced by the government of new Prime Minister Mark Carney, is expected to lead to lower gas prices across the country. However, since Quebec does not use the federal carbon pricing system, it may not benefit from this drop in pump prices.

Just hours after being sworn in, Carney signed an order in council that will bring carbon pricing back to zero for consumers as of April 1.

According to a new economic study by Desjardins, the removal of the federal price on pollution will reduce the cost of a litre of gasoline by approximately 18 cents on April 1 in provinces where it is in effect. To fill a 50-litre tank, that’s saving of $9.

According to Desjardins’ calculations, the average price at the pump in Canada will fall to $1.44 per litre on April 1, instead of $1.56.

Federal carbon pricing for consumers is in effect in all provinces and territories except Quebec, British Columbia, and the Northwest Territories, which have their own systems.

British Columbia announced its intention to abolish its provincial consumer carbon pricing following Carney’s announcement, meaning Quebec could be the only province where the cost of a litre of gasoline will not decrease next month.

Indirect Impacts

Nevertheless, Quebec could benefit indirectly from the end of the “carbon tax” for consumers.

While the effect will not be as immediate, Desjardins predicts that Canadians will see inflation gradually slow at the grocery store, as lower gas prices will lower transportation costs, which will be reflected in food prices.

The Desjardins study also suggests that the end of carbon pricing for consumers will lower overall inflation over the next year, which could give the Bank of Canada room to cut interest rates and support the Canadian economy during the trade war with the United States.

Tu Nguyen, an economist at RSM, points out that, just as consumer carbon pricing has been slow to increase, it may take some time for Canadians to see the impact of its absence on the prices they pay.

The price of gasoline, for example, depends not only on government tax policy but also on global prices, which are also influenced by changes in demand and production disruptions.

“These factors will likely have a greater overall impact on gasoline prices than the carbon tax,” said Nguyen.

The Specter of a Trade War

The Desjardins report predicts that, in the absence of the federal carbon price for consumers, inflation in April will be 0.7 per cent lower than it would have otherwise been.

This should bring the annual inflation rate down to 2.1 per cent.

February inflation data, released Tuesday, showed a jump in inflation to 2.6 per cent, mainly due to the end of the GST holiday granted by Ottawa for the festive period and the start of winter.

According to Desjardins Deputy Chief Economist Randall Bartlett, inflation is expected to continue slowing at the same pace for about a year, which could “offset” the upward pressure on inflation from Canada’s retaliatory tariffs and the weak Canadian dollar, which are pushing up import prices.

Nguyen, for her part, believes that the price surges expected during the tariff battle will “outweigh” the impact of the removal of the “carbon tax” on consumers. She notes that perishable grocery prices will rise first, followed by those of household appliances and other durable goods.

Desjardins had forecast inflation would exceed three per cent by the end of 2025. Without the federal consumer carbon price, she now predicts inflation of around 2.5 per cent by the end of the year.

Last week, after announcing another rate cut, Bank of Canada Governor Tiff Macklem suggested that while monetary policy could mitigate the effects of the trade war, the central bank remained focused on controlling inflation. A decline in the short-term inflation rate, linked to the end of the federal carbon price on consumers, could give the Bank of Canada more leeway to respond to economic shocks, while worrying less about inflation, according to Bartlett.

— With information from Craig Lord

–This report by La Presse Canadienne was translated by CityNews