LASER TALK: Border Carbon Adjustments

LASER TALK: Border Carbon Adjustments

Our Carbon Fee and Dividend policy has a provision built in to protect trade competitiveness: a “Border Carbon Adjustment” (BCA) imposed on carbon-intensive trade-exposed goods [1,2] that cross our border in either direction. Products imported from a country that does not bear a carbon price equivalent to ours will have to pay a surcharge to make up the difference. Conversely, a Canadian-made product exported to such a country will get a refund for the carbon fee associated with its carbon footprint.

This BCA prevents Canadian manufacturers from being put at a competitive disadvantage in global markets because of the fee. It will also remove the incentive for them to relocate overseas to avoid the carbon fee. In addition, it will encourage foreign countries to adopt their own carbon fee so they would get the money instead of us. Carbon Fee and Dividend’s BCA is designed to comply with international trade law. [3,4]

Note that exported fossil fuels don’t get any special border treatment. Our proposal does not include a refund for Canadian-produced fossil fuels that are exported, and imported foreign oil has the same carbon fee placed on it as domestically produced oil. The BCA applies only to carbon-intensive products, not fuels.

border tax adjustments.fw

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.

 

REFERENCES:
1)  Provincial Carbon Pricing and Competitiveness Pressures.  Canada’s Ecofiscal Commission (November 2015)
2) Nicholson, M.W. “Disaggregated Analysis of Competitiveness and Employment Issues in Energy-Intensive Trade-Exposed Industries.” International Trade Administration (Jun 2010).
3) Pauwelyn, J. “Carbon Leakage Measures and Border Tax Adjustments under WTO Law.” In Research Handbook on Environment, Health and the WTO (21 Mar 2012).
4) “Climate and carbon: aligning prices and policies.” OECD Environment Policy Paper No. 1 (Oct 2013).

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