The imposition of carbon taxes in Canada was initially met with approval from the business community, viewed as a forward-thinking approach to addressing environmental concerns. These taxes were introduced as a mechanism to internalize the environmental cost of carbon emissions, aligning with Canada's commitments under the 2016 Paris Agreement. However, the unfolding reality has revealed a more complex impact on the Canadian business landscape, particularly for those unable to transfer the increased costs to consumers. This is leading to a nuanced discussion around the effectiveness and implications of carbon taxation for Canada’s economic productivity and business valuation.
Carbon taxes
Quebec enacted the first carbon tax in Canada in 2007. Carbon taxes were introduced in Canada in 2018 through the Greenhouse Gas Pollution Pricing Act. The purpose of carbon taxes was to ‘put a price on pollution’ by recognizing the cost of pollution and accounting for those costs in Canadian’s daily decisions in order for Canada to meet its objectives defined in the Paris Agreement signed in 2016 within the United Nations Framework Convention on Climate Change.[1]
Carbon taxes were initially well received by the Canadian business community, evidenced by the 2018 release by the Canadian Chamber of Commerce (the Chamber)[2].
The Chamber endorsed the plan suggesting that there was general consensus for the efficiency of a carbon tax to address climate change.
Carbon tax has had a regional effect through its impact on specific sectors of the economy. The agricultural and energy producing sectors are initially affected by the tax before passing costs on to later consumers, such as fertilizer manufacturing and trucking.Carbon Tax Cost and Effect on Competitiveness
In 2019, the Fraser Institute undertook an analysis called, The Impact of the Federal Carbon Tax on the Competitiveness of Canadian Industries[3]. It found,
Forty industries including oil and gas extraction, cement and concrete product manufacturing and primary metal manufacturing, which account for nearly 20% of Canada’s output, would see their production costs increase by more than 1%. The cost increase for the remaining 71 sectors of the economy is, on average, 0.6%. We estimate the production cost increase for the whole economy (all industries combined) in the short run would be 2.4%.
The Fraser Institute then measured the ability of the industries to pass on these costs to their customers. Companies who are price-takers from the international markets have the least ability to pass on these costs. Such companies will lose market share to their international competitors through higher prices or face reduced profitability. Declining profitability and shrinking market share may lead to reduced employment and capital investments in the short term.
Declining Business Sentiment towards Carbon Tax in Canada
By 2022, business sentiment toward carbon taxes had changed. By October 2022, the Canadian of Commerce was a little less optimistic. The Chamber and its Net-zero Council responded to the federal emission reduction plan (the ERP). Entitled, How We Get There Matters: Establishing a Path to Net-zero in Canada[4], the Chamber offered key recommendations to the federal government to enable delivery of the projected 2030 and 2050 targets. The Chamber was gently critical of the deficiency in federal net-zero spending.“The Council strongly believes the Federal government’s own level of net-zero funding must substantially rise. Current federal government spending estimated to be about 10%-20% of what is required across the public and private sector combined.”
Source: Canadian Chamber of Commerce and its Net-zero Council, How We Get There Matters: Establishing a Path to Net-zero in Canada, October 22, 2025
In November 2023, the Chamber wrote a letter to the Members of the Senate of Canada to encourage the passing of Bill C-234 to give Canadian farmers financial relief[5]. Bill C-234 amends the Greenhouse Gas Pollution Pricing Act to provide an exemption of the carbon tax on natural gas and propane for farmers. Bill C-234 was not passed and is currently before Parliament.
In February 2024, the Chamber recognized,
Canada’s competitiveness is slipping. Our productivity continues to decline. This means Canadians are poorer overall, have fewer opportunities to pursue their personal goals, and have to pay more just to stay where they are. We must pursue growth if we are to maintain our standard of living and continue to provide the services Canadians require.[6]
Carbon Taxes and Economic Performance
There is a relationship between increased taxation and economic performance of businesses. The Fraser Institute recognized the increase in cost of carbon taxes could result in reduced profitability with the potential negative effect on employment and capital investment. The Chamber recognized the need and petitioned for carbon tax relief for segments of the Canadian economy. Canadian businesses are losing are losing their competitive edge. Canada’s productivity is in decline.
Effect on Business Valuations
The value of a business is largely related to the present value of future cash flow. When a business is facing increasing costs as a result of taxation policies, the business will attempt to pass on those costs to their customers. Businesses forced to absorb increased costs as a result of competition will face lower profitability. Lower profitability and slow growth business face higher costs of capital and lower values as a result.
Equilibrium between environmental stewardship and economic vitality
The unfolding discussion around carbon taxes in Canada underscores the delicate balance between environmental stewardship and economic vitality. While the rationale for carbon taxes aligns with the laudable goal of mitigating climate change, their practical application has caused a re-evaluation of their impact on the competitiveness of Canadian businesses, particularly in sectors like agriculture and manufacturing. This situation calls for a reset of policies to ensure that environmental objectives are achieved without compromising the economic sustainability of key industries, thereby maintaining a balance between ecological responsibility and the imperatives of economic growth and national productivity. Once well received by the Canadian business community, the imposition of carbon taxes have had an impact on Canadian businesses. The carbon taxes have resulted in decreased profitability for those Canadian businesses unable to pass costs to their customers. Canadian consumers face cost inflation from those businesses who have been able to pass on costs.
End Notes
[1] How carbon pricing works - Canada.ca, March, 25, 2024
[2] Canada's largest business group 'very much in favour of' carbon pricing | CTV News, Mia Rabson, the Canadian Press, December 2014
[3] The Impact of the Federal Carbon Tax on the Competitiveness of Canadian Industries | Fraser Institute, August 22, 2019
[4] Canadian Chamber of Commerce and its Net-zero Council respond to federal emissions reduction plan - Canadian Chamber of Commerce, October 4, 2022
[5] Canadian_Chamber_of_Commerce_C-234.pdf, Letter to Member of the Senate, Senate of Canada, Canadian Chamber of Commerce, November 17, 2023.
[6] Submission_Bill_C-59.pdf (chamber.ca); Written submission for the Study of Bill C-59, the Fall Economic Statement Implementation Act, Canadian Chamber of Commerce, February 2024.