LASER TALK: Border Tax Adjustments

CCL’s policy includes a border adjustment on goods imported from or exported to countries without an equivalent price on carbon. This adjustment would both discourage businesses from relocating to where they can emit more CO2 and encourage other nations to adopt an equivalent price on carbon. Together, the tax on imports and refund on exports are called the “border adjustment” (green boxes in the Figure 1 below).

The border adjustment would be as fair and accurate as possible for similar goods based on their carbon emissions. The refund to exports would come from the tax imposed on imports (Figure 2). The fee (blue boxes in Figure 1 below) on fossil fuels is a separate pot than the border adjustment pot. Fossil fuel imports to the Canadian are assessed the fee (not part of the border adjustment), and fossil fuels exported from the Canada get no refund.

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An illustration of how CCL’s border adjustment works. Boxes in blue are subject to the fee, boxes in green are subject to the border adjustment. Carbon intensive goods produced domestically that stay in Canada are not touched; it is assumed they will bear the burden of higher fossil fuel costs because of the upstream assessment point for our fee.

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