Canada’s European trading partners are considering erecting a carbon border wall on imports such as steel, aluminum, fertilizers and cement. The European Union (EU) plan is to place import tariffs on carbon-intensive products that originate from countries with weak or non-existent environmental standards. The carbon tariff is intended to drive down international carbon emissions.
The EU, like Canada, has imposed a price on carbon in a drive to reach net-zero carbon emissions by 2050. But putting a price on carbon could have undesired outcomes. Goods produced in countries with a carbon price may be more expensive, compared to goods from countries without one. A carbon border tariff would level the playing field and remove any advantage to inaction on carbon emissions.
Details of the EU “carbon border adjustment mechanism” are contained in a 291-page proposal recently made public. If adopted, the tax would take effect in 2026.
Canada has been in discussion with the Biden administration about erecting a similar North American carbon tariff wall. But at this point, there is no indication the talks will soon result in a tangible proposal.
Carbon emissions are being targeted because they are changing the world’s climate. When fossil fuels are burned, CO₂ is a by-product that traps heat in the atmosphere. So much CO₂ has been emitted, that NASA estimates average global temperatures have grown hotter by about 1.2°C since 1880. Temperatures will continue to rise as CO₂ emissions rise.
What do these carbon reduction actions mean for Canadian businesses?
Energy markets are increasingly being driven by climate concerns. Businesses not paying attention and not actively managing their energy use may experience some unpleasant surprises.
For 360 Energy clients, however, actions to reduce carbon emissions open up new business opportunities.
A higher price on carbon increases the costs of using fossil fuels. On the other hand, consuming electricity in places with a lot of hydro, nuclear and clean renewable power generation provides competitive advantages. Companies using low-carbon emitting energy and inputs may soon receive preferential treatment if exporting their products to the EU.
Even if Canadian businesses do not export directly into Europe, they may supply products to their customers that do. An EU carbon wall could soon impact North American supply chains.
Some may hope the EU carbon tariff will not materialize. However, extreme weather events, made worse by a warming climate are forcing politicians to contemplate measures they would never have dreamed of implementing even 5 years ago. Devastating floods in Europe, drought and wildfires in North America are making inaction on climate look more costly than action on climate.
Businesses that manage carbon emissions as part of their corporate energy strategy will be the ones best positioned to compete, thrive and prosper as the world comes to terms with what is required to slow, or even reverse climate warming.
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