Carbon Borders
A Costly Misdirection Affecting Canadian Trade and Defence Interests
Here is an excerpt to my recent Policy Perspective, co-written with former National Energy Board member Ron Wallace, for the Canadian Global Affairs Institute. The full article is available at the continue reading link below the excerpt.
Mark Carney has made it clear that, as part of continued net zero policies, his government will consider imposing a Carbon Border Adjustment Mechanism (CBAM), a carbon tariff applied to imports to support Canadian products burdened by domestic carbon pricing.
Proposed in 2021 and included in the 2024 Fall Economic Statement, the Canadian CBAM is a misguided attempt to shield domestic industries. In response to America’s new tariffs, a CBAM has been proposed to pivot trade to the European Union (EU) and adopt a European-style CBAM. Here we argue that any attempt to harmonize Canada with the EU’s complex regulations risks overregulation that would put Canadian companies at a competitive disadvantage and potentially strain ties with the United States (US), Canada’s primary defence and trading partner. Coming at a time when America is distancing itself from net zero policies, the Trump administration would certainly view any Canadian border adjustment mechanisms as thinly-disguised trade barriers that affect sovereign control of trade. Moreover, this mechanism proposed by the EU could impact Canadian exports, including defence-related products should those materials or components fall under future CBAM regulations currently under consideration for extension to downstream products beginning in 2026.