Carbon Tax Removal 2025: Impact on Ontario Heating Costs

What Was the Carbon Tax Adding to Your Gas Bill?

The federal carbon price (formally the "federal fuel charge" under the Greenhouse Gas Pollution Pricing Act) applied a per-unit charge to fossil fuels including natural gas. The charge was designed to increase annually, and by the time it was removed in April 2025, the rate was $80 per tonne of CO2 equivalent.[2]

For natural gas, that translated to approximately $0.1239 per cubic metre. Here is what that looked like on a typical Ontario gas bill:

These amounts appeared as the "Federal Carbon Charge" line item on Enbridge Gas bills. Customers also received quarterly Climate Action Incentive payments from the federal government intended to offset the cost, though the offset amount varied by household size and did not necessarily cover the full cost for high-usage homes.[7]

What the Removal Means for Your Gas Bill

With the carbon tax gone, the per-cubic-metre cost of natural gas has dropped by $0.1239. For context, here is how that charge fit into the total cost of gas before removal:[1]

The carbon charge represented roughly 25-30% of the variable (per-unit) cost of natural gas. Its removal is meaningful, but gas is not suddenly cheap. The commodity, transportation, and delivery charges remain, and those have their own upward pressures from infrastructure costs and global gas markets.[6]

Also worth noting: the quarterly Climate Action Incentive payments that partially offset the carbon tax have also ended. For households that were receiving more in rebates than they paid in carbon charges (typically lower-usage households), the net financial effect of removal is actually negative.

Gas vs Electric Heating: Updated Cost Comparison

The carbon tax removal has reignited the gas vs electric heating debate. Let us look at the actual numbers for a typical 2,000 square foot Ontario home:

Annual Heating Cost Comparison (Post Carbon Tax Removal)

Even without the carbon tax, a cold-climate heat pump costs roughly $400-$800 less per year to operate than a high-efficiency gas furnace for the same home. With the carbon tax, that gap was $600-$1,000.[4]

The reason is fundamental physics, not policy. A heat pump moves heat rather than creating it through combustion. For every unit of electricity consumed, a modern cold-climate heat pump delivers 2.5 to 3.5 units of heat. A gas furnace, at best, converts 0.96 units of gas energy into 0.96 units of heat. No amount of carbon pricing policy changes that efficiency advantage.[4]

Does This Change the Heat Pump vs Furnace Decision?

The short answer: it shifts the payback period, but does not change the conclusion for most homeowners. Here is the math:

Scenario: Replacing a Gas Furnace

With carbon tax: the heat pump's extra upfront cost paid for itself in roughly 5-10 years through operating savings.

Without carbon tax: the payback period extends to roughly 7-14 years. Still within the 15-20 year life of the equipment, but the margin is tighter.

For homeowners switching from electric baseboard, oil, or propane to a heat pump, the math remains very favourable. The carbon tax removal only affects the gas-to-heat-pump comparison, and even there, the heat pump still wins on lifetime cost.[4]

What If You Already Have a Heat Pump?

If you already purchased and installed a heat pump, the carbon tax removal does not change your situation in any meaningful way. Your heat pump still costs less to run than a gas furnace would. The savings are slightly smaller than they were when gas prices included the carbon charge, but you are still coming out ahead on operating costs.

Switching back to gas would require purchasing a new furnace ($4,500-$7,000 installed), and your monthly operating costs would actually go up. There is no scenario where abandoning a working heat pump for a new gas furnace makes financial sense.

Impact on Rebate Programs

A common question is whether the carbon tax removal will lead to the cancellation of HVAC rebate programs. As of early 2026, the main programs continue:[5]

• Federal Home Renovation Savings Program (HRS): Still active. Offers $2,000-$3,000 for gas-heated homes and $5,000-$7,500 for electrically heated homes installing qualifying heat pumps. Geothermal systems qualify for up to $12,000 in electrically heated homes.
• Oil to Heat Pump Affordability (OHPA): Still active for homes switching from oil heat.
• Utility programs: Enbridge Gas and local electric utilities continue to offer some efficiency incentives, though program availability varies.

That said, the political landscape around energy and climate policy is evolving. Rebate programs that were designed partly to offset carbon costs may see reduced funding or changed eligibility criteria in future budget cycles. If you are planning a major HVAC purchase and rebates are a significant factor in your decision, do not delay indefinitely. Confirm current program availability and apply promptly.

The Bigger Picture: Energy Price Trends

Focusing solely on the carbon tax misses the broader energy cost picture. Several factors affect where gas and electricity prices are heading:

• Natural gas commodity pricesare influenced by global markets, LNG export demand, pipeline capacity, and weather. Ontario's gas supply is largely sourced from Western Canada and increasingly competes with export markets.[6]
• Gas delivery infrastructure costs are rising as Enbridge invests in system maintenance and upgrades. These costs flow through to delivery rates regardless of the commodity price.[1]
• Ontario electricity rates are regulated by the OEB under time-of-use or tiered pricing. The Global Adjustment, delivery charges, and regulatory costs make up a significant portion of the bill. Off-peak rates favour heat pump operation since most heating occurs at night and on weekends.[3]
• Electrification trends are driving long-term investment in grid capacity and renewable generation, which may affect electricity pricing in both directions.

The carbon tax was one variable among many. Its removal provides near-term relief for gas heating customers, but it does not insulate them from the other factors that drive energy costs upward over time.

Practical Recommendations

If You Heat with Gas and Your Furnace Is Working

Enjoy the lower gas bills. You do not need to make any changes based on the carbon tax removal alone. When your furnace eventually needs replacement (typically at 15-20 years), evaluate heat pump options at that time based on the costs and rebates available then.

If You Are Shopping for a New Heating System Right Now

Run the numbers both ways. A heat pump still saves money over its lifetime compared to gas, but the margin is smaller without the carbon tax. If rebates are available and your home is suitable for a heat pump (adequate electrical service, compatible ductwork), the heat pump remains the better long-term investment. If your budget is tight and the upfront cost difference is the deciding factor, a high-efficiency gas furnace is a reasonable choice that will serve you well.

If You Are on Electric Baseboard, Oil, or Propane

The carbon tax removal does not materially affect your situation. These heating fuels were already expensive, and the case for switching to a heat pump remains very strong.[4]

If You Are Building a New Home

Consider that a new home will be standing for 50+ years. Over that timeframe, energy policy will change multiple times. A heat pump gives you the most efficient heating system regardless of what happens with carbon pricing, gas prices, or electricity rates. The updated Ontario Building Code is also trending toward electrification-ready construction.

Frequently Asked Questions