Enabling Climate Ambition: Border carbon adjustment in Canada and abroad
With Canada’s carbon price legislated to rise to CAD 170/tonne by 2030, we urgently need to design protections to ensure that our energy-intensive trade-exposed sectors achieve real emissions reductions, as opposed to seeing emissions simply transferred to unregulated foreign competitors.
Border carbon adjustment (BCA) will be a reality in the European Union (where it’s known as CBAM) by 2023, and the United States and United Kingdom intend to adopt similar systems. Any country with climate ambition will need to seriously consider following suit.
But BCA is devilishly complex, politically explosive, potentially illegal under trade rules, and would have to be adapted to Canada’s unique climate pricing regime. It’s imperative to start thinking in depth about how to get it right.
As climate ambition ramps up in Canada and around the world, one of the key challenges governments face is how to impose meaningful carbon prices on domestic industries when not all trading partners are similarly ambitious. In countries that are pursuing ambitious climate policies, there has been increasing interest in an instrument that could help enable that ambition: border carbon adjustment (BCA). BCA aims to ensure that imports face the same carbon price faced by domestic producers.
But BCA is devilishly complex, politically explosive, potentially illegal under trade rules, and would have to be adapted to Canada’s unique climate pricing regime. So Canadian policy-makers need to start thinking now about what such a regime might look like here.
This report surveys eight design elements and makes specific recommendations for the shape of a Canadian BCA. The report also explores how Canada should react to emerging BCA schemes in major trading partners such as the EU and United States, and how its own scheme might accommodate climate policies in those countries.
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