Ottawa Should Apply Carbon Price to Imports and Rebate it on Exports

October 6th, 2016

To reduce emissions and safeguard Canadian jobs, the federal government should apply its new floor price for carbon emissions to the carbon content of imports from countries that do not price carbon, and rebate it on Canadian exports to those countries. Such border adjustments would address the concerns about international competitiveness raised by Premier Brad Wall and others.

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“Because pollution crosses borders, all provinces must do their part,” said Prime Minister Justin Trudeau in announcing the floor price.

“But pollution also crosses international borders,” responded Regina–Lewvan MP Erin Weir. “Prompting carbon-intensive industries to relocate from Canada to countries without carbon pricing will not reduce global emissions.”

The federal government can use its jurisdiction over international trade to address this problem of carbon leakage. A carbon tariff on imports, with a corresponding rebate on exports, would enable Canada to go further in reducing emissions by pricing carbon in our own market without putting Canadian industry at a competitive disadvantage.

Border adjustments would help safeguard good jobs at Regina’s largest private-sector employers: the Co-op Refinery and Evraz Steel. An export rebate would keep these facilities competitive when selling petroleum products and steel to the US or overseas.

“Since producing a ton of steel in China emits far more carbon than producing it in Canada, the carbon tariff per ton of Chinese steel entering Canada would substantially exceed the carbon price on Canadian-made steel,” noted Weir. “Border adjustments would support domestic production to the extent that it is cleaner than imports.”

The federal government should embrace this approach since one of its stated principles is “Carbon pricing policies should minimize competitiveness impacts and carbon leakage, particularly for trade-exposed sectors.” Premier Wall should welcome border adjustments as a concrete solution to his stated concerns that carbon pricing will hurt “trade-exposed resource industries” and “make our province less competitive.”

Scholarly analysis indicates that international trade agreements would permit border adjustments for carbon pricing, much as they permit the GST being applied to imports and rebated on exports. Carbon tariffs were part of the Waxman-Markey Bill passed by the US House of Representatives in 2009 and are being considered by the European Union.