B.C.'s carbon tax, which took effect July 1, adds almost 2.5 cents to the price of a litre of fuel. (CBC)

Municipalities hit by the B.C. government's carbon tax will receive a rebate if they commit to becoming carbon neutral by 2012.

Premier Gordon Campbell announced the plan Wednesday at the Union of B.C. Municipalities convention in Penticton.

"The Climate Action Revenue Incentive program will be a new conditional grant equal to what local governments pay in the carbon tax, with only one string attached," Campbell said in a news release.

"To be eligible, communities must sign on to the Climate Action Charter and commit to becoming carbon neutral by 2012."

Municipal leaders at the convention passed a resolution earlier Wednesday, asking the Liberal provincial government to reduce the financial impact of the tax and create incentives for small communities to reduce greenhouse gases.

B.C. Premier Gordon Campbell says a similar program to offer a carbon tax rebate will be developed with boards of education across the province. (CBC)

The provincial carbon tax kicked in July 1 and adds 2.4 cents to the price of a litre of fuel.

The levy, introduced in last February's budget, will be phased in over five years to give consumers and businesses time to adjust and to understand there is a cost associated with generating harmful greenhouse gases.

The carbon tax starts at a rate based on $10 per tonne of carbon emissions and rises $5 each year to $30 per tonne by 2012. The tax works out to an extra 2.4 cents a litre on gasoline, rising to 7.24 cents per litre by 2012.

Campbell said Wednesday that the province will work in partnership with the Union of B.C. Municipalities to develop a framework to track what local governments pay annually in carbon tax.

They will be required to report annually on steps they have taken to achieve carbon neutrality by 2012.

"If communities do that, and publicly report on their plan and progress in meeting that goal, they will be eligible to receive a grant equal to 100 per cent of their carbon tax costs," Campbell said.

A similar program to offer a carbon tax rebate will be developed with boards of education across the province.