Even without carbon tax, heating oil still the most expensive way to heat your home

The surprise announcement last week that Canadians who heat their homes with heating oil will get a three-year reprieve from the Trudeau government's carbon tax led to immediate calls for the tax to be removed from other fuels, including natural gas.

But with or without the carbon tax, home heating oil is largely in a class of its own when it comes to cost. At current prices, it can cost four times more to generate an equivalent amount of heat with oil as it does with natural gas.

And the region which relies the most on heating oil is the East Coast — where most MPs are Liberals, but also where household incomes lag behind the rest of the country.

How much more does heating oil cost?

The day Justin Trudeau made his announcement, the maximum price for heating oil in Prince Edward Island — the province which relies on the fuel the most — was set at $1.67 per litre. As with most fuels in P.E.I., the price of home heating oil is regulated by the Island Regulatory and Appeals Commission.

To understand how that cost compares with other forms of home heating, you have to look at how much energy it takes to produce an equivalent amount of heat.

A standard unit used to measure heat energy is the gigajoule (GJ). Gigajoules are also used to measure quantities of natural gas.

Using a mid-efficiency oil furnace, it would cost you about $48 to produce a GJ of heat at current P.E.I. prices, not including HST.

Taking away the carbon tax would knock that down to about $43.

Even paying some of the highest electricity rates in the country, Islanders with heat pumps pay about $18 to generate the same GJ of heat energy.

If you live in Saskatchewan and use natural gas, it'll cost you a little over $12 to generate the same amount of heat — including commodity and transmission charges and the carbon tax, but not including monthly service charges. For SaskEnergy, Saskatchewan's publicly-owned natural gas utility, that charge is currently $26.50 per month.

Unlike electric and natural gas utilities, oil companies don't charge monthly service fees and they don't tend to charge for deliveries, although some have a minimum amount they will deliver.

"Oil [is] significantly more expensive than every other option," said Tyler Gallant, a lecturer with the University of Prince Edward Island's faculty of sustainable design engineering. Gallant is currently working on his PhD looking at energy use in P.E.I., and helped with the numbers for this analysis.

"It was a shock to me as well just how cheap natural gas was, just not having access to it here."

Except for limited industrial uses where liquified natural gas is trucked in from New Brunswick, Prince Edward Island does not have access to natural gas.

How much does the carbon tax affect the price of oil?

Gallant said he was also surprised to see that eliminating the carbon tax won't make a big dent in the cost to heat with oil in P.E.I. Based on current prices, eliminating the carbon tax will save Islanders 11 per cent on a litre of heating oil, making it still more expensive than the alternatives.

"It [makes] a slight difference, but it seems like the fundamental difference just came from the price of fuel itself," Gallant said.

The carbon tax is a standard price — $65 as of this year — per tonne of CO2-equivalent emissions generated.

Up until July 1, 2023, heating oil had been exempt from the carbon tax in both P.E.I. and Newfoundland and Labrador. When the carbon tax started to be applied on heating oil, it started at 17 cents per litre. There was no gradual ramp-up as there was with gas or diesel prices across the country.

Because natural gas creates fewer emissions compared to heating oil, the carbon tax charged on it is lower. But because natural gas itself is already so much cheaper, the carbon tax makes up a bigger percentage of the overall cost to homeowners — for customers in Manitoba or Saskatchewan, about one-third, based on current pricing.

Lt. John Burton of the Salvation Army in Charlottetown administers P.E.I.'s home heating program on behalf of the P.E.I. government, which provides up to $1,200 per year to low-income households to help with heating costs.

Applications this year are up five-fold. Burton said dropping the carbon tax on heating oil will help, but many Islanders still won't be able to afford to heat their homes.

"We see so many people that unfortunately have to choose between food and heating their house, and that's not the way it should be," Burton said.

Which provinces use home heating oil?

The most recent information from Statistics Canada is from 2021 and shows three provinces had a significant proportion (more than 10 per cent) of households which used oil as their primary heat source.

P.E.I. has been offering incentives to get residents to switch to electric heat pumps, including free heat pumps for low-income households, and the proportion of households using that heat source has likely grown since 2021.

The two provinces that rely most on oil for home heating — Nova Scotia and P.E.I. — are also the provinces with the lowest average weekly earnings in the country.

What about differences in temperature across the country?

While natural gas is cheaper than heating oil, if you live in the prairies you're going to need more heat to get through the winter than in the Maritimes.

One measurement of that is a statistic called heating degree days, which measures the cumulative number of degrees below 18 C on each day through a calendar year.

In terms of how these differences in climate translate to energy use, Statistics Canada measures how much natural gas and heating oil households use on average.

From 2011 to 2019, households in Canada that used natural gas — from Quebec through B.C. — consumed an average of 92 GJ worth per year. For Saskatchewan the number is 94 GJ.

For oil heat the average consumption was 62 GJ. P.E.I. households that use oil used significantly more than the average — 80 GJ per household.

Finally, using current prices, we can estimate how much it could cost homeowners in different climates to heat their homes using different fuel sources this year — understanding these are estimates, and weather and fuel prices will change things.

Based on these averages and current fuel prices, P.E.I. residents who heat with oil could expect to spend nearly $3,400 on heat this winter — that's without paying any carbon tax. A Saskatchewan resident using natural gas (and paying the carbon tax on that) would spend $1,144. Adding 12 monthly natural gas service charges with SaskEnergy bumps that up to $1,462.

Here's a what-if comparison looking at what it would cost Islanders to heat with Saskatchewan natural gas, and what Saskatchewan residents could expect to pay using heating oil at P.E.I. prices. Heat pump and propane costs are included for good measure, using local prices for each province.

How much of a role did politics play in Thursday's announcement?

Of the 32 MPs representing Atlantic Canada, 24 are Liberals, and they were making their discontent with the current policy known.

Trevor Tombe, an economist with the University of Calgary said it would have been better for the government to further increase rebates under the carbon tax program rather than create an exception for one type of emissions.

"Any time you exempt one thing from a broad-based system, you increase the pressure to exempt other things," Tombe said. 

"Because it was done by the federal government in such a sudden and transparently politically motivated way ... this one exemption will almost surely lead to exempting other sources of heating fuel."

Tombe said it will be very hard for the Trudeau government to "resist further steps to walk back the carbon pricing system that it does now seem they regret implementing in the first place."

While last week's announcement doubled the premium rural Canadians receive on their carbon tax rebates from 10 to 20 per cent — and all of P.E.I. is considered rural under the system — Tombe said by next year Prince Edward Islanders will see their rebates shrink because the rebates are calculated province-by-province based on carbon tax revenues, and P.E.I.'s revenues will shrink without including heating oil.

CBC asked the federal government for comment on the rebates but did not receive a response.