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ArcelorMittal Dofasco, the largest steel maker in the country, is battling for investment within a global steel-and-mining conglomerate, and higher carbon costs will make it harder to win those fights, Sean Donnelly, president of its Hamilton-based Canadian operations, told a climate-change conference in Ottawa on Wednesday.

Norm Betts/Bloomberg

Canada's energy-intensive industries are warning that rising carbon levies will erode their competitiveness in an already tough global marketplace, as Ottawa prepares legislation to impose a national pricing system.

ArcelorMittal Dofasco, the largest steel maker in the country, is battling for investment within a global steel-and-mining conglomerate, and higher carbon costs will make it harder to win those fights, Sean Donnelly, president of its Hamilton-based Canadian operations, told a climate-change conference in Ottawa on Wednesday.

Dofasco is covered by Ontario's cap-and-trade program, which came into effect in January and will have to meet federal standards on ambition and price once the federal Liberal government adopts its own carbon-pricing law.

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The additional carbon cost "creates an unlevel playing field in markets where we participate that are not under cap-and-trade or carbon pricing regimes," Mr. Donnelly said after his presentation. "So as long as that exists, we're at a significant disadvantage."

The country's steel, oil and gas, chemical, forestry and cement industries face the biggest challenge from carbon pricing, according to a new study from the Conference Board of Canada, which hosted the session in Ottawa.

Those concerns are heightened by U.S. President Donald Trump's plans to reverse course on climate change, reduce environmental regulations and push for corporate tax cuts.

"They are looking aggressively to make the United States a more competitive place to do business," said Bob Masterson, president of the Chemistry Industry Association of Canada. "We know we are already uncompetitive to attract new investment to Canada. Our worry is [the carbon pricing] is going to make it more so."

Industry representatives said Wednesday they support carbon pricing, but want to ensure its impacts are manageable. They urged governments to tax only "excess" emissions; recycle revenues back to industry to support technological innovation, and to offset higher costs with other tax breaks.

If federal and provincial governments are not careful, they will create a perverse situation in which emission-intensive industry moves out of Canada to jurisdictions that have virtually no climate policy and even higher GHG-intensity for that industry, Mr. Masterson said. The effect would be higher global emissions, while Canada achieves its targets in part by exporting industrial jobs.

He praised the approach of the Alberta government, which provides carbon-tax relief for companies that rank as among the most efficient in their industry.

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In designing its system, the Ontario government sought to soften the impact on industries that are energy-intensive and operate in international markets, including steel, refineries, chemical plants and cement makers. Companies that distribute natural gas and gasoline have to purchase allowances to cover emissions from all the energy they sell, while industrial users get free permits up to an allowable limit, or cap.

However, that cap will decline by an average of 3 per cent per year – meaning industry will have to cut emissions, or buy allowances or credits in the marketplace. The Ontario government has said it will review whether to continue the free-allowance system beyond 2020.

In the coming weeks, the federal Liberal government will release a discussion paper on its proposed carbon-pricing legislation, which it intends to introduce next fall. Environment Minister Catherine McKenna has said she is committed to ensuring the plans protect the country's industrial competitiveness.

Even with the free allowances, Dofasco expects to spend $32-million over the next four years to cover its declining cap and the higher cost of the energy it uses to make steel, Mr. Donnelly said.

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