The federal government is opening the door to implementing carbon tariffs, as a way of pricing industrial greenhouse gas emissions without hurting domestic companies.
Environment Minister Jonathan Wilkinson responded to a Globe and Mail query about carbon border adjustments (CBAs) – a method of applying carbon pricing to imports that has recently gained traction elsewhere, starting in the European Union – with more enthusiasm than Ottawa has previously expressed for it.
“Border carbon adjustments are a very interesting tool that can be effective at pushing for collective action across the world to combat climate change, while also protecting the competitiveness of key industries,” Mr. Wilkinson said in a statement provided to The Globe. “There are numerous conversations occurring in other jurisdictions about their application. We are watching those developments with great interest and intend to be active participants in international discussions on this issue.”
Mr. Wilkinson’s comments seemed to be a shift in tone from a couple of weeks ago, when he expressed more skepticism about a call by Green Party Leader Annamie Paul for a Canadian border adjustment policy. At that time, he told reporters that while he “wouldn’t rule it off the table” and is interested in its evolution elsewhere, a CBA is “not something that we’re going to be doing” to help exceed Canada’s 2030 emissions-reductions commitments under the Paris Agreement.
The Environment Minister’s office framed his more recent response as a clarification of his earlier one. But the evolving position may also reflect Ottawa playing catch-up as carbon tariffs gain traction among its trading partners.
The EU is already in the process of designing a CBA. Potentially more importantly for Canada, the United States could follow suit if Joe Biden wins the Nov. 3 presidential election. The Democratic nominee’s “Made in America” plan for U.S industry includes a promise to “apply a carbon adjustment fee against countries that are failing to meet their climate and environmental obligations.”
It’s unclear what form a U.S. border adjustment would take. The mechanism is meant to be applied in combination with domestic carbon pricing, which the Americans do not have and Mr. Biden has been non-committal about. Were he to attempt to impose tariffs without a pricing system, it would put his administration on a collision course with international trade law.
Nevertheless, a U.S. move toward the policy could be the biggest catalyst for Canada to do likewise. Aaron Cosbey, an expert on CBAs who has also advised Ottawa on other trade matters, told The Globe last week that “it’s a much more serious discussion if it’s continentally integrated” and that if Mr. Biden wins, “we will probably start seeing the beginning of those discussions.”
Michael Bernstein, who heads the pro-carbon pricing group Clean Prosperity and has been engaging with the federal government on the tariffs issue, said he thinks Mr. Wilkinson’s latest comment reflects “growing recognition that the world is moving towards a trading system that prices carbon via mechanisms like a border adjustment.” While he thinks Canada moving on the policy “may be a few years away,” he agrees that the likelihood will increase if Mr. Biden wins the presidency.
The premise of CBAs is that jurisdictions with carbon pricing systems in place can apply tariffs to goods from countries that lack equivalent policies. Among the reasons the mechanism might appeal to Prime Minister Justin Trudeau and his cabinet is that it theoretically allows for more ambitious pricing of domestic industry, with fewer of the exemptions currently offered to protect competitiveness.
The sectors that appear likeliest to be targeted by the EU’s policy include steel, cement, aluminum and electricity. (It does not appear likely to have a strong direct impact on fossil fuel exports from Canada, which are relatively minimal to Europe regardless.) But determining where border adjustments apply is among the many complexities for any country seeking to implement them.
Mr. Cosbey said before Mr. Wilkinson’s expression of interest that from his experience to date, the federal bureaucracy “has done their homework” on the move toward the policy elsewhere and how it could develop here. “But absent any political signals there hasn’t been any urgency.”
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