The carbon price is now off home heating oil — but the cost of oil is still high

OTTAWA — Draft regulations removing the carbon price from home heating oil are now in effect, Finance Canada confirmed Friday, but the change will do little to ease affordability woes for Canadians who rely on oil furnaces to stay warm.

Prime Minister Justin Trudeau announced the change in October, saying a three-year pause on applying the carbon price to heating oil will allow people with oil furnaces more time and money to replace them with electric heat pumps. 

The government also increased the amount of money available from a federal-provincial grant program to help people pay for heat pumps.

The policy has been roundly criticized from people on both sides of the carbon-price debate. 

Conservative Leader Pierre Poilievre, who had already been campaigning to eliminate the carbon price entirely, called the heating oil pause divisive because it affected only one kind of heating. 

On the other hand, environmental activists called it short-sighted and possibly harmful to carbon pricing, which they said is still often a very misunderstood policy.

Rachel Doran and Trevor Melanson, from Clean Energy Canada, wrote this week that the whole thing has been “a government communications failure.”

“The policy has been made a political scapegoat for (the) true cause (of) Canadians’ affordability struggles,” they said in an emailed newsletter.

In the last four years, home heating oil prices have soared between 50 per cent and 80 per cent in most places in Canada. 

On average, a family with a three-bedroom bungalow in the Atlantic provinces uses about 3,000 litres of fuel oil to get the home heated, including for hot water and space heating. 

In November 2019, that would have cost about $3,000 for the year. 

But at current prices, which ranged on Friday between $1.35 and $1.45 per litre depending on the location, the bill is now between $4,000 and $4,350.

The carbon price would have added another $521 to that. The carbon price rebate would have covered at least some of the additional expense, and those rebates will be lowered next year to reflect the heating oil exemption.

The Natural Resources Canada comprehensive energy use database shows 1.2 million homes in Canada use heating oil. 

While only about one-quarter of those are in Atlantic Canada, heating oil is more common among that region’s households. 

Almost one in three homes in the four Atlantic provinces rely on heating oil, including more than half of households in Prince Edward Island, about one in three in Nova Scotia and almost one in six in both New Brunswick and Newfoundland and Labrador.

By comparison, natural gas, which is dominant as a heating source in the Prairies and Ontario, costs between $1,200 and $1,400 a year per household, on average. The carbon price, which is included in that amount, amounts to an average of about $288.

Space heating accounts for more than five per cent of Canada’s total emissions.

Heating oil is about 40 per cent more carbon-intensive than natural gas, meaning it produces more greenhouse gases per unit of energy. On a per unit basis, heating oil produces 74 kilograms of carbon dioxide for every gigajoule of energy, compared with 53 kilograms for natural gas.

If that one-gigajoule amount of energy is produced by burning natural gas, the greenhouse-gas emissions would measure approximately 3,000 to 3,300 kilograms of carbon dioxide, or its equivalent weight in other gases such as methane and nitrous oxide. 

That’s about the same amount of greenhouse gases that are produced if an average car drives across the entire length of the TransCanada highway 1.6 times. 

Producing the same amount of energy with heating oil generates the same emissions as driving that car along the coast-to-coast highway 2.3 times.

Kate Harland, research lead on mitigation for the Canadian Climate Institute, said the cost of heating oil is already so high that adding the carbon price to it doesn’t have the same effect as it does for natural gas users.

Harland said carbon pricing is important, and sending a consistent signal is how the policy is most effective. When people know the price is going up over time they can make decisions about their future energy needs and choices with more confidence, she said.

For natural gas users, the cost is so low that the additional carbon price can factor into decisions to use alternative energy sources instead, she said. 

“Pricing carbon may not tip the balance on cost in Atlantic Canada,” said Harland. 

“But there are some places where it really does tip the balance.”

A carbon price does help direct people who are looking to replace an oil furnace to seek out more environmentally friendly options, said Harland. 

If a household moves from fuel oil to natural gas, that doesn’t have as much of a climate benefit as if they moved to an electric heat pump — nor does it prevent them from having to pay the carbon price.

Some provinces, such as Alberta and Saskatchewan, still rely heavily on fossil fuels for electricity, but by 2030 all coal power must be either turned off or attached to carbon-capture systems due to federal regulations. By 2035, the same will be true of natural gas.

Brendan Haley, director of policy research at Efficiency Canada, said the debate about what to apply the carbon price to is missing the bigger picture about how best to help people transition to less carbon-intensive heating sources. 

He said that for lower- and moderate-income people, removing the carbon price isn’t suddenly giving families the up-front break they need to be persuaded on a heat pump.

“I don’t think the policy solution is necessarily to take the carbon price off,” said Haley. 

“It’s to really prioritize the homes that need the help the most and have the highest energy burdens, to make the choices that will insulate them from the carbon price.”

The home heating pump program is only available in Nova Scotia, Newfoundland and P.E.I. right now because they are the only provinces that have to date agreed to partner with Ottawa to deliver it. 

Haley said many Canadians, with or without the carbon price, don’t have the money in reserve that they would need to pay for heat pumps.

The programs, he said, also aren’t flexible enough to help people make the energy efficiency upgrades to their homes that would make heat pumps work better.

Haley said he thinks the government’s biggest mistake with carbon pricing was not pairing it with solid and accessible programs that help people make the switch to cleaner energy sources.

This report by The Canadian Press was first published Nov. 10, 2023.

Mia Rabson, The Canadian Press