Canada Emphasizes Coordination With US, EU on Carbon Border Adjustment
International coordination on how to account for embedded emissions in traded products is essential, Canada asserted in a recently published white paper about its exploration of a carbon border adjustment tax. "Work on international border carbon adjustments is in progress. An important part of advancing this work is ensuring a common understanding. To this effect, the government will continue its important conversations with Canadians and international partners, including the United States and European Union, in the coming months," the government wrote.
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Canada said 85% of its exports of carbon-intensive products and 71% of its imports of carbon intensive products are with the U.S., the European Union and the United Kingdom. It noted that the EU has progressed the most on a carbon border adjustment approach.
The white paper said officials are asking themselves how a carbon border adjustment can comport with trade law obligations, and should there be an exemption, or other flexibility "for imports from certain developing countries or countries that are also taking ambitious measures to reduce their [greenhouse gas] emissions?"
They're also asking what are the risks to trade relations in adopting a carbon border tax.
"A key challenge to ensure that the international trading system supports [carbon border adjustments] is to consider whether and how non-pricing regulatory instruments can be compared to explicit pricing measures," the paper said. The U.S. does not have a carbon tax, and is not moving toward one, but it is moving toward a carbon border adjustment tax, based on the regulatory costs of environmental laws such as clean energy standards for power plants.
The white paper said Canada could choose to apply import charges to "goods from countries that either do not have carbon pricing or apply a lower carbon price to ensure that they face similar carbon costs," or Canada could offer export rebates "so that domestically produced goods compete on equal footing in foreign markets, alongside goods from countries with limited or no carbon pricing."