Gas Prices in Canada May Drop 25 Cents Per Litre – Here’s What the CRA Carbon Policy Change Means for You

A major shift in Canada’s climate and energy policy could lead to significant relief at the gas pumps, as Prime Minister Mark Carney moves to eliminate the consumer carbon tax. Starting April 1, 2025, Canadians could save as much as 25 cents per litre on fuel—marking the country’s most dramatic fuel price drop in years.

This policy shift comes through an order-in-council signed by Carney shortly after assuming leadership, and it eliminates the federal carbon price on fuel, slashing the fuel charge rate to zero.

How Much Could Gas and Diesel Prices Drop?

According to Dan McTeague, fuel pricing analyst and president of GasWizard.ca and Canadians for Affordable Energy, Canadians in Ontario could see gasoline prices drop by 20 cents per litre, while diesel users might benefit from an even larger reduction of up to 25 cents per litre.

“As of Tuesday, April 1st—and let’s hope this isn’t an April Fool’s joke—gas prices could drop significantly across the country,” McTeague said, adding that these reductions could vary by province due to regional fuel taxes, GST, and transportation costs.

Why Diesel Prices Matter More Than You Think

While gasoline reductions are welcome news for drivers, experts like McTeague highlight that diesel costs have wider economic consequences.

Diesel fuels industries that form the backbone of the economy, including:

• Agriculture
• Freight and logistics
• Mining and natural resources
• Public transit and construction

A sustained drop in diesel prices could lower operating costs for these sectors, eventually translating to slower inflation, more stable food prices, and reduced shipping surcharges.

“If this drop in diesel prices is sustained,” McTeague noted, “we could see a downward revision in inflation and price pressures overall.”

The Policy Behind the Pump Price Drop

The consumer carbon price, introduced under Canada’s federal climate plan, added a fee per tonne of carbon emitted. This fee directly increased fuel prices to reflect their environmental impact. However, in 2025, Carney’s administration has opted to:

• Eliminate the consumer-level carbon tax
• Freeze the fuel charge rates after March 31, 2025
• Allow prices to adjust downward automatically across provinces where the federal backstop applies

This is being presented as a temporary suspension—but what happens next depends on the outcome of the upcoming federal election.

Is This Price Drop Permanent? That Depends on the Election

While the April 1, 2025 price cut is effectively guaranteed due to the signed order, its future remains uncertain. The timing of the change overlaps closely with a potential federal election, which could shift Canada’s climate policy dramatically.

• If the Liberal government is re-elected, the plan is to replace the consumer carbon tax with an industrial carbon tax that targets fuel refiners and major emitters.
• These refiners, McTeague warns, will likely pass on those costs to consumers, effectively re-inflating prices in a different way.
• If the Conservatives win, they have pledged to scrap the carbon tax entirely, both for consumers and industry. This could cement the price drop and prevent a rebound.

When Could the Federal Election Be Called?

Sources suggest that a federal election could be called as early as March 22 or 23, 2025, triggering a minimum 37-day campaign period.

During this time, the consumer carbon tax would remain suspended, meaning Canadians would enjoy at least one month of lower gas and diesel prices.

Whether that relief continues beyond the election entirely depends on which party forms the next government.

Public Reaction: Relief and Skepticism

The announcement has sparked mixed public reactions:

• Motorists and business owners have welcomed the news as a timely relief amid high living costs.
• Environmental groups and some economists have voiced concerns that removing the carbon price undermines Canada’s emissions targets.

McTeague, however, argues that the rebate system has not fairly compensated Canadians, particularly middle-class households, who often pay more in carbon taxes than they receive in rebates.

Understanding the Canada Carbon Rebate System

Under the current system, revenues from the carbon tax are returned to Canadians through the Canada Carbon Rebate, which varies by province and household size.

But many believe this rebate doesn’t offset the real cost of carbon pricing, particularly for:

• Suburban families who drive long distances
• Small businesses that rely on fuel-powered equipment
• Rural residents with fewer public transit options

These groups may see the April 2025 change as a much-needed correction.

Economic Ripple Effects Beyond the Gas Station

The fuel price cut could have a broader economic impact:

• Lower transportation costs may reduce the price of goods, including groceries and online deliveries
• Reduced fuel costs could encourage more domestic travel and consumer spending
• Businesses may reinvest savings in hiring, technology, or expansion

However, experts caution that any savings could be short-lived if the carbon cost simply shifts upstream to producers.

Could Prices Rebound Due to the Industrial Carbon Tax?

Yes. If the Liberal plan proceeds post-election, a refined version of the carbon tax would target fuel producers instead of consumers. This industrial carbon pricing system may initially appear invisible at the pump but could:

• Raise the cost of production
• Create supply chain pressure
• Lead refiners to increase wholesale prices, ultimately passed on to end users

In other words, prices could creep back up, albeit through a different route.

How Much Could Consumers Actually Save?

Let’s look at the numbers:

• A 25-cent-per-litre drop means savings of $12.50 on a 50-litre fill-up
• For weekly drivers, that could equal $50–$75 per month
• Diesel truck operators could see even greater savings, improving fleet costs and freight pricing

For Canadians struggling with cost-of-living pressures, these numbers are meaningful, especially during the early months of 2025.

Gas Prices Are Also Affected by Global Markets

It’s important to remember that while federal carbon tax changes influence base pricing, global factors still play a role, such as:

• Crude oil supply and demand
• Geopolitical conflicts
• OPEC decisions
• Currency fluctuations

So, even if the tax is removed, global market volatility could still affect pump prices.

What Should Canadians Expect in April 2025?

If the policy holds and an election is called:

• April 1, 2025, becomes the key date when gas and diesel prices drop
• Savings may last through the election period
• A new government will decide whether the policy stays, changes, or is reversed

In short, Canadians should enjoy the short-term benefit, but watch closely for what happens post-election.