The end of the ‘carbon tax’ will bring down gas prices, but not in Quebec

A gas pump is shown at a filling station in Montreal on April 12, 2017. A Desjardins analysis released Wednesday predicts the annual rate of inflation will be 0.7 percentage points lower in April than it would have been with the consumer carbon price in place. THE CANADIAN PRESS/Graham Hughes

The withdrawal of the federal carbon tax, announced by new Prime Minister Mark Carney, should lead to lower gas prices across the country, but, since Quebec does not use the federal carbon pricing system, the province may not benefit from this reduction in prices at the pump.

Just hours after being sworn in, Carney signed an order-in-council that will reduce carbon pricing for consumers to zero from 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 gas by around 18 cents on April 1 in the provinces where it is applied. For a 50-litre tank, that’s a saving of $9.

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

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, which means that Quebec could be the only province where the cost of a litre of gas will not fall next month.

Indirect impacts

Despite everything, Quebec could benefit from the indirect advantages for consumers of the end of the carbon tax.

Although the effect will not be as immediate, Desjardins predicts that Canadians will see inflation gradually slow down at the grocery shop, because lower petrol prices will reduce transport costs, which will have an impact on food prices.

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

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

The price of gas, for example, depends not only on government tax policy, but also on prices set globally, which are also influenced by changes in demand and production interruptions.

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

The spectre of a trade war

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

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

Inflation data for February, published on 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 should continue to slow at the same rate for the next year or so, 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 surge in prices to come during the tariff battle will outweigh the impact of the withdrawal of the carbon tax for consumers. She notes that prices of perishable goods at the grocery shop will rise first, followed by those of household appliances and other durable goods.

Desjardins had forecast that inflation would exceed three per cent by the end of 2025. Without federal consumer carbon pricing, it is now forecasting inflation of around 2.5 per cent at the end of the year.

Last week, after announcing a further cut in the policy rate, 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 keeping inflation under control.

A fall in the short-term inflation rate, linked to the end of federal consumer carbon pricing, could give the Bank of Canada more manoeuvring room to respond to economic shocks, while worrying less about inflation, according to Bartlett.

With information from Craig Lord

This report by The Canadian Press was first published in French on March 19, 2025.