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Hundreds of millions of dollars in promised grants for small and medium-sized businesses to help them reduce carbon emissions are stuck in fiscal limbo, despite Ottawa’s much-repeated assertion it returns all the revenues it collects through the federal fuel charge.

The delay in rolling out those grants is part of a larger pattern of lagging supports for small and medium-sized businesses. Ottawa initially said it would send rebates, along with grants, to such businesses as part of refunding the proceeds of fuel charges. That rebate program never materialized.

Corinne Pohlmann, the senior vice-president of national affairs for the Canadian Federation of Independent Business, said the government had promised a program better suited to small businesses after her organization flagged its concern that requirements of the initial grant program required too much of an upfront investment by them. That program, too, has not materialized. “We’ve heard nothing,” says Ms. Pohlmann.

According to an annual carbon-pricing report from the Environment and Climate Change Department released last week, $719.8-million was designated to be paid out in fiscal 2019-20 and 2020-21 through federal programs to small and medium-sized businesses, schools, hospitals, colleges and universities, municipalities, not-for-profit organizations and Indigenous communities.

Those budgeted amounts were supposed to account for about 10 per cent of the fuel-charge revenue that Ottawa collected from Ontario, Manitoba and Saskatchewan and Alberta in those two years, with the other 90 per cent going to households in those provinces.

But just over 14 per cent of that $719.8-million pool of money was directed to specific projects in those four provinces, with the remaining $618-million waiting to be spent in the future.

For fiscal 2019-20, just $34.7-million out of the $147.3-million designated for small and medium-sized businesses was allocated. For public-sector entities, $58.3-million out of a budgeted $73.5-million was allocated, along with $9-million for rural and Indigenous communities. But for the 2020-21 fiscal year, $499-million went unallocated – there were no programs in place to distribute those funds.

That lack of assistance for small businesses is in sharp contrast to the rebates that Canadian households receive, and the flexible regulation regime for large emitters that lessens the cost of reducing greenhouse gas emissions.

“It is interesting that there’s this report now showing that all this money is just sitting there, and nothing’s been done,” Ms. Pohlmann said. “It is disappointing.” The CFIB had called on the government to delay a 25-per-cent fuel-charge increase that takes effect Friday. But that hike is going ahead as scheduled.

In its annual report, the Environment Department pointed to COVID-19 and the 2019 federal election as factors that led to delays in parcelling out grant money, adding that the problem was exacerbated by some organizations scrapping or scaling back plans. The department says it does intend to distribute that funding eventually to small and medium-sized businesses, as well as to Indigenous communities. But in the meantime, the unallocated cash continues to pile up at an accelerating rate as the fuel charge increases on April 1 each year.

Last year’s federal budget doesn’t give a specific figure for grants to businesses and public-sector entities for fiscal 2021-22 and fiscal 2022-23, but there are projections for the overall fuel-charge proceeds that are to be returned. Using the government’s 90-10 split, there would be an additional $690-million in the current fiscal year for such grants, and $810-million more for the coming fiscal year.

So far, Ottawa has announced plans that account for only a small amount of those funds: a rebate program for farmers that is projected to pay out $141-million in the 2021-22 fiscal year and the next. That leaves nearly $2-billion yet to be allocated through to the end of fiscal 2022-23.

Ms. Pohlmann says the CFIB would like the government to use that money to reduce other tax burdens on small businesses. Rebates are another possibility, she said, but the wide variation in carbon footprints among different types of businesses would complicate such a program, she noted. If the government decides to stick with grants, it should ensure that retroactive applications can be made so businesses aren’t penalized by Ottawa’s delays, Ms. Pohlmann added.

There are other programs for small businesses outside of the strictures of the fuel-charge regime, including the Environment Department’s Low Carbon Economy Challenge fund. In a statement, the department said it has committed $88-million so far and expects to spend even more.

Michael Bernstein, executive director of the non-profit group Clean Prosperity, said small and medium-sized businesses are one of three groups – the other two being farmers and rural communities – that are not getting a fair share of the proceeds of the federal fuel charge to assist in reducing their use of fossil fuels.

He said his group’s research indicates that small businesses pay about 25 per cent of the fuel charge, but are able to pass on only about three-fifths of those added costs. That means small businesses bear about 10 per cent of the fuel-charge cost, Mr. Bernstein said, but the government is designating only 7 per cent of the revenues to them. And that would assume that Ottawa is spending those funds in a timely manner – which it is not.

Mr. Bernstein said his organization has already floated the idea of targeted tax credits for small businesses. That would be a way to break the logjam in returning funds to businesses, he said, rather than waiting for the government to design and administer a new grants program.

It’s important for Ottawa to get those funds into the hands of businesses in order to ensure Canadians see the carbon-pricing regime as being administered fairly, he said. “As the price rises, the attention on it will become more acute,” Mr. Bernstein added.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

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