Ottawa rejected P.E.I.'s carbon tax plan, triggering 17.4-cent spike in heating oil next July

Ottawa rejected P.E.I.'s most recent plan for carbon pricing in the province, saying it "does not align with the federal benchmark criteria."

That's why P.E.I., along with Nova Scotia and Newfoundland and Labrador will switch to the federal government's "backstop" plan for carbon pricing on July 1, 2023.

In P.E.I.'s case it means exemptions on home heating oil and propane, in place since the carbon tax first came into effect in 2019, will be gone.

That will increase the price of heating oil by 17.4 cents and the price of propane by 10 cents, as Islanders absorb in a single day price increases which in other provinces were spread out over five years.

For the first time, Islanders will also to begin to receive federal carbon rebate programs in July.

Ottawa said the payments will amount to $480 per year for a single adult, $960 annually for a family of four, paid in quarterly instalments.

On Tuesday the federal government said that includes a 10 per cent supplement for all Island residents because the entire province is considered rural. In other provinces, only rural residents receive the supplement.

Will 'have an impact on Islanders,' says premier

Premier Dennis King said, while the number has been declining steadily, about 56 per cent of Islanders still use oil in some capacity to heat their homes, though some of those would use both oil and electric heat pumps.

"We need more time to help Islanders transition," he told reporters Tuesday, "and by implementing 17.4 cents per litre on home heating fuel, which is at an all-time high level, I think that's going to have an impact on Islanders."

P.E.I. hasn't made its proposal public and it's not entirely clear exactly what the province was asking for.

For some time now the premier has been saying P.E.I. would have to give up its carbon tax exemptions.

"We were hoping to maintain an exemption for home heating fuel and also the little bit that we have negotiated for gas and diesel, knowing very well that they were going to implement a price on propane for the first time," King said during question period.

"We tried to keep home heating fuel 17.4 cents cheaper, we tried to keep gas 3.4 cents cheaper, we tried to keep propane 10 cents cheaper, and we tried to keep diesel four cents cheaper," King told the house.

The 3.4 cent increase in gas and the four cent increase in diesel correspond with the increase that will apply across the country July 1 as the federally-mandated price on carbon increases from $50 to $65 per tonne of emissions.

That price is set to reach $170 per tonne by 2030.

Revenues will disappear

In its current budget P.E.I. is projecting to take in $31.6 million in carbon levy revenues — more than it brings in from cigarette or alcohol taxes, or from the provincial excise tax on fuel.

Liberal MLA Robert Henderson asked how the province will continue to fund programs to help Islanders transition from fossil fuels without that money.

"Will your government continue to be offering programs for heat pumps, electric hot water heaters, toonie transit, if you don't have the federal monies to distribute?"

Afterward, King told reporters those programs are important, "but the money we were using to fund a good chunk of these is now going directly to Islanders, so we're going to need to find a way to see how we can fund those going forward."

When the province provided a breakdown of how carbon tax revenues were being spent in March, it said the largest chunk — $13.2 million — was being applied to offset a drop in revenue from gas taxes, which were lowered during the first two years of the carbon tax.

Good for Islanders and environment, say Greens

For years P.E.I.'s Green Party has been calling for a carbon rebate program like the federal backstop.

Opposition leader Peter Bevan-Baker said thousands of dollars in revenues which should have gone in Islanders pockets were instead applied toward incentives, some of which were effectively out of the reach of Islanders who need help the most.

"There are not too many low-income Islanders who are buying an electric vehicle. But there are thousands of regular Islanders who are struggling every day to meet their basic needs, put a roof over their heads and food on the table and money is far more important than those programs."

He said returning carbon tax revenues to households will be good for Islanders, the economy and the environment "and it's just very disappointing that the premier had to be backed into a corner and forced to do this."