Carbon border adjustments are coming to Canada – it is just a matter of when.
Ten days before calling the election, the Liberal government announced consultations would officially begin on carbon border adjustments. A policy paper detailing the policy was included.
BCAs aim to reduce the so-called “carbon leakage” occurring when a company leaves a jurisdiction with carbon pricing for one without it.
In these instances, the carbon that would have had a levy on it is just being emitted elsewhere with no penalty – but a BCA aims to put a price on that carbon once the product created enters the global trade market.
BCAs look to level the playing field for carbon pricing across nations and remove any “out” for industries trying to avoid paying for pollution.
Proponents say BCAs help domestic industries compete globally, particularly with nations not pricing pollution.
BCAs can be applied through measures like an import charge, where goods arriving from countries with lower carbon prices would be charged to ensure equitable carbon costs.
The introduction of the policy was teased in the government’s 2020 climate plan, which said it is “committed to ensuring that Canada’s transition to a low-carbon economy is achieved in a way that is fair and predictable for businesses, and supports Canada’s international competitiveness. To this end, the government is exploring the potential of border carbon adjustments, and will be discussing this issue with its international partners.”
Plans to explore BCAs were published in the same year, and the 2021 budget announced consultations with provinces, territories, importers and exporters – “especially those who deal in emissions-intensive goods.”
Now in the midst of those consultations, it appears to be a foregone conclusion this proposed policy will soon be reality in Canada and elsewhere.
The European Commission voted in July to adopt a BCA that will launch in 2023 and be fully operational in 2026. Like with carbon pricing, Canada will likely follow suit.
The EU says the policy will “put a carbon price on imports of a targeted selection of products so that ambitious climate action in Europe does not lead to ‘carbon leakage.’”
(Despite consultations in Canada still ongoing, there are already whispers around Ottawa that Canada will look to mimic EU policies as closely as possible.)
President Joe Biden campaigned on imposing carbon adjustment fees, leading to further speculation Canada will look to implement its own BCAs.
Still reeling from the lost debate over the merits – and pitfalls – of carbon pricing in general, producers will soon be grappling with the challenge of determining how BCAs can impact their operations.
For starters, the whole idea of BCAs rests on the premise of being able to find out the pollutants associated from individual imports (including agricultural ones), as well as the supply chains involved.
With no national example to look to (at least not yet), being worried specific products might be given an inaccurately high pollution level (and adjustment fee) appears to be warranted. There are early warnings (including one from the Bank of Canada) that supply chains will be impacted enough to raise production costs.
Already operating in a tedious global trading system, the addition of further trade mechanisms like a BCA would also add another layer of complexity, and potential tension, for international traders – even if policy-makers claim WTO rules are being abided by.
While not here yet, this policy is on the horizon – and like the introduction of the carbon levy – border adjustments have the potential to drastically impact Canadian industry, including agriculture.