The federal government is cutting the amount of financial relief small businesses will receive from carbon pricing revenues so it can increase the size of the rebate it is providing to rural families.

That's despite the fact the government still owes businesses more than $2.5 billion in promised carbon pricing revenues from the first five years of the program — and refuses to say when that money will flow.

Small businesses were already paying more than they were getting back, and the change will make that shortfall even worse, said Dan Kelly, the president of the Canadian Federation of Independent Business. 

"It is deeply unfair," Kelly said.

"I expect the outrage level among small businesses toward this tax to rise once business owners find out about the bad tax being even a bigger ripoff."

The CFIB estimates small businesses contribute as much as 40 per cent of the government's overall carbon price revenues. Clean Prosperity, an economic and climate change think tank, puts it closer to 25 per cent.

But they were never set to receive more than seven per cent of the revenues back, and now that amount is dropping to five per cent.

Information posted to the federal government website last week shows Ottawa intends to return $623 million in carbon pricing revenues to businesses for the 2024-25 year.

In 2023-24, the government allocated almost $935 million for small business, which is 50 per cent more than it was when the carbon price itself was $15 less per tonne.

That is happening as the federal government increases the rebates paid to rural households, which initially were getting a 10 per cent top-up to the household carbon rebate. As of April 1, that goes up to 20 per cent.

Prime Minister Justin Trudeau announced the move last fall at the same time as he promised a three-year exemption from carbon pricing for heating oil.

He said the government has and will continue to help small businesses "transform" their operations to save energy, but acknowledged the extra funds for rural rebates had to come from somewhere.

"In every policy we have to make choices," Trudeau said last October.

Questions to Environment and Climate Change Canada and Finance Canada about the change have thus far gone unanswered.

The change also comes as Ottawa has paid out only a small fraction of what it already promised small businesses to begin with.

The carbon price was designed so that 90 per cent of the money collected from consumers and smaller businesses would be provided to individual households in the form of a rebate. 

Small and medium-sized businesses — those without major carbon footprints of their own — were to get about seven per cent back through various grant programs designed to encourage investments in more energy-efficient equipment, appliances or building retrofits.

The rest was to be shared between Indigenous communities, municipalities, hospitals and schools, again through a myriad of programs to contribute to energy efficiency upgrades.

The carbon rebates have flowed as promised to households, but various problems, including the COVID-19 pandemic, caused the other programs to stumble out of the starting gate.

Just over $100 million has been returned through the programs so far, including $35 million to small business, $60 million to schools and about $6 million to Indigenous communities.

That failure to launch prompted Finance Minister Chrystia Freeland to promise a new system to distribute the $2.5 billion owed to small businesses for the first five years of carbon pricing.

That plan, announced in 2022, was to target businesses in "emissions-intensive and trade-exposed sectors," but those have yet to be defined. Beyond the shrinking share of the pie, no additional details have been released.

Environment Canada would provide no details when asked about the $2.5 billion promise earlier this month.

"The government of Canada is working hard to launch these fuel charge return programs," the department said in an emailed statement.

Not only is the change unfair, it's undermining the whole purpose of carbon pricing, Kelly said. 

"The whole principle of a carbon tax is you tax carbon-based activities and you give the money back so that then people make decisions to use those dollars in lower-carbon activities," he said. 

"The whole concept doesn't work if you don't give the money back."

Michael Bernstein, the executive director of Clean Prosperity, said he doesn't think the reduction is justified.

"I do think there's a legitimate concern there."

Bernstein said he has advised the government to offer businesses a tax credit to offset what they pay in carbon pricing.

This report by The Canadian Press was first published Feb. 20, 2024.