The federal government says it still plans to give out $2.5-billion in long-promised carbon-price rebates to small and medium-sized businesses, after suggesting last week that some of those funds would be moved to other programs.

Prime Minister Justin Trudeau announced last week that the federal government would increase the rural rebate and exempt home-heating oil from the national carbon levy by reducing the amount earmarked for small businesses.

But on Thursday, the government said it would not touch the $2.5-billion it had already promised to small businesses over five years, starting in 2019.

Instead, funding for small businesses would only be reduced starting April 1, 2024, which is when the increase to the rural top-up kicks in, said Katherine Cuplinskas, spokesperson for Finance Minister Chrystia Freeland.

In past budgets, Ottawa had set aside funds to compensate small businesses for the increased costs they bear through the federal carbon price. But little of that funding has so far been spent: An early rebate program failed to deliver much money to businesses, and a redesigned program has not yet launched.

Dan Kelly, president of the Canadian Federation of Independent Business, said it was good that Ottawa was not touching the funds it had already promised, as it is coming from carbon-price payments already made by small businesses over the past 4½ years.

“The $2.5-billion past allocation should be immediately returned to all small businesses that paid the tax, regardless of the sector of the economy,” Mr. Kelly said. “Instead, government has taken four years to develop complicated programs that remain on the drawing board today.”

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The initial program to return money to small businesses was a fund launched in 2019 that aimed to reimburse organizations for making energy-efficiency upgrades. The program was wound down after two years because of low uptake, according to a 2022 report from the federal environment commissioner.

“In our view, due to the issues encountered in delivering the funding, the department had not addressed the burden from carbon pricing faced by small and medium‑sized enterprises,” the watchdog’s report said.

The federal environment department redesigned the program and it is hiring intermediary groups in various regions to hand out the money on its behalf. The department said last week that more details would be announced in early 2024.

Mr. Kelly said he remains concerned about how much money is allocated to small-business rebates.

He said the CFIB supports expanding carbon-price exemptions to all forms of heating fuels, which should include natural gas used by small businesses.