Doubling the rural top-up rate for fuel charge rebates – Update

On October 26, 2023, the Government announced a doubling of the rural top-up rate (also known as the rural supplement) for fuel charge rebates from 10 per cent to 20 per cent starting in April 2024.

On November 17, 2023, PBO published a cost estimate of the increase in the rural top-up rate. In the absence of information related to the funding of this measure, PBO assumed that all “base” fuel charge rebate and federal programming amounts would not be affected by the increase in the rural supplement.[^1] Further, PBO assumed that fuel charge rebates and federal programming in Prince Edward Island would also not be impacted.[^2]

Recent announcements of fuel charge rebate (Canada Carbon Rebate (CCR)) amounts[^3] and returning fuel charge proceeds in 2024-25[^4] indicate that the increase in the rural supplement will be funded out of proceeds collected within a province based on a new allocation structure for returning proceeds. The Government also indicated that households in Prince Edward Island will receive the rural top-up.

Under the new allocation structure, 93 per cent (up from 90 per cent) of federal fuel charge proceeds collected in a province will be returned to households—including the rural supplement—in that province; 5 per cent (down from 9 per cent) of proceeds will be returned to small- and medium-sized enterprises (SMEs); and the remaining 2 per cent (up from 1 per cent) will be returned to Indigenous governments.

Since fuel charge proceeds collected continue to be returned through rebates to households and federal programming within each province, the new allocation structure returns more proceeds to households and Indigenous governments, and fewer proceeds to SMEs. Moreover, for provinces where a (relatively) large proportion of their population resides outside of a Census Metropolitan Area (CMA), the doubling of the rural top-up rate is also partially funded through a reduction in base CCR amounts.

Based on the new allocation structure, PBO estimates that doubling the rural top-up rate would increase (total) rural supplement payments by $345 million in 2024-25, rising to $647 million in 2030‑31 (Table 1). Table 2 provides estimates of the impacts on the rural supplement by province. In addition, PBO estimates that there would be an overall net increase in base CCR amounts of $77 million in 2024-25, rising to $156 million in 2030-31 (Table 1). This increase reflects higher base rebates in provinces with the lowest rural population shares (Ontario and Alberta), that offset reductions in base amounts in other provinces with higher rural population shares (Table 3).[^5]

The decrease in the total amount for SMEs reflects the reduction under the new allocation structure, down to 5 per cent of fuel charge proceeds returned from 9 per cent. The increase in the total amount for Indigenous governments is due to the doubling of their share of proceeds returned from 1 to 2 per cent under the new allocation structure (Table 1). Tables 4 and 5 provide estimates of the impacts on fuel charge proceeds returned to SMEs and Indigenous governments by province, respectively.

Since changes to rural supplements, base CCR, SME and Indigenous amounts are funded within the existing fuel charge proceeds envelope, the net cost of doubling the rural top-up rate from 10 per cent to 20 per cent would be zero (Table 1).

• Estimates are presented on an accrual basis as would appear in the budget and public accounts.
• Estimates are based on the assumption that there are no timing differences between when proceeds are received and when they are returned.
• The value of “0” means that the cost is not material (that is, less than 500 thousand dollars). An empty cell represents a value of zero.
• * The impacts on rural supplement and base CCR amounts in Prince Edward Island are notional calculations since all households in the province receive the same rebate. The impact on fuel charge proceeds returned to all households in Prince Edward Island is the combined amount shown in Table 2 and Table 3.
• Totals may not add due to rounding.

PBO defined the changes in rural supplement, base CCR, SME and Indigenous government amounts (in all provinces where the federal fuel charge currently applies), as the difference between the amounts with the 20 per cent rural top-up applied under the new allocation structure for returning proceeds, and the amounts with the 10 per cent rural top-up applied under the previous allocation structure. In both cases, the pause in the fuel charge on heating oil was incorporated.

PBO calculated these amounts using projected estimates of fuel charge proceeds provided by Environment and Climate Change Canada (ECCC). The estimated proceeds reflect the most recent projections of GHG emissions in each province by sector, published in ECCC’s Greenhouse Gas and Air Pollutant Emissions Projections – 2023.

To be eligible to receive the rural supplement, in provinces where the federal fuel charge currently applies, households must reside outside of a CMA. The determination of a CMA is based on the most recent Census published by Statistics Canada before the taxation year. PBO estimated the proportion of each province’s population eligible to receive the rural supplement using CMA determinations based on the 2016 Census for fiscal years 2024‑25 and 2025-26. Thereafter, the 2021 Census CMA determinations were used.

Projections of GHG emissions by sector are sensitive to assumptions about the behavioral impact of carbon pricing and other economic factors.