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] 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. [2,3]

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.

UPDATE JULY 2020: The European Union’s COVID-recovery package includes putting forward proposals for Border Carbon Adjustments in the first semester of 2021 with a view to enacting them at the latest by January 1, 2023. Thus, the EU is on track to be the first government in the world to enact Border Carbon Adjustments. [4]

Heavy industrial GHG emitters in Canada don’t pay the full carbon price. In early October, the Parliamentary Budget Office released a report [5] that concluded if governments keep sheltering industrial emitters from carbon pricing to protect their competitiveness, consumers will bear a greater burden for Canada to meet its climate targets.

Also, at the end of October 2020, ECCC Minister Jonathan Wilkinson responded to a Globe and Mail query about border carbon adjustments (CBAs) elsewhere, starting in the European Union – with more enthusiasm than Ottawa has previously expressed for it. [6]

On October 29, 2020, the European Union and the Canadian government released a joint statement [7] to continue joint efforts to overcome the COVID-19 pandemic in keeping with shared principles and values of democracy, human rights, and the rule of law and based on the EU-Canada Strategic Partnership Agreement.  Specifically, contained within that joint statement were phrases such as: “stressed the urgency to step up global action to tackle climate change,” ” implementing the G20 Action Plan agreed by Finance Ministers and Central Bank Governors” and “build back better” while “leaving nobody behind.”

On December 12, 2020, the federal government released its most ambitious climate ever [8]. Included in the document was the following statement:  Explore the potential of border carbon adjustments, and work with like-minded economies—including the E.U. and Canada’s North American partners—to consider how this approach could fit into Canada’s broader strategy to meet climate targets while ensuring a fair environment for businesses.

On March 4, 2021, the permanent mission for Canada at the WTO hosted an event on Border Carbon Adjustments that had over 750 attendees. On March 5, 2021, Citizens’ Climate Lobby Canada was part of an event hosted by Citizens’ Climate Europe on  Border Carbon Adjustments that included at least a dozen Members of the European Parliament. On March 10, 2021, the European Parliament voted by a wide margin (444-70, with 181 abstentions) to support the development of a Carbon Border Adjustment Mechanism (CBAM) as part of the EU Green Deal.

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) http://ecofiscal.ca/wp-content/uploads/2015/11/Ecofiscal-Commission-Carbon-Pricing-Competitiveness-Report-November-2015.pdf
2) Pauwelyn, J. “Carbon Leakage Measures and Border Tax Adjustments under WTO Law.”(21 Mar 2012) In Research Handbook on Environment, Health, and the WTO.
3) “Climate and carbon: aligning prices and policies.” OECD Environment Policy Paper No. 1 (Oct 2013).
4)  EU- COVID Recovery Plan 
(July 21, 2020) https://www.consilium.europa.eu/media/45109/210720-euco-final-conclusions-en.pdf 
5) Carbon Pricing For Paris: Closing the Gap with Output-Based Carbon Pricing (Oct 2020)
https://www.pbo-dpb.gc.ca/web/default/files/Documents/Reports/RP-2021-019-S/RP-2021-019-S_en.pdf
6) Ottawa is taking great interest in Border Carbon Adjustments, Adam Radwanski, Globe and Mail (October 2020)
https://pressreader.com/article/281930250466337
7) Joint press release: EU-Canada Leaders’ Virtual Meeting (October 29, 2020) https://pm.gc.ca/en/news/news-releases/2020/10/29/joint-press-release-eu-canada-leaders-virtual-meeting
8) 8) A Healthy Environment and Healthy Economy (12 Dec 2020)
https://www.canada.ca/en/environment-climate-change/news/2020/12/a-healthy-environment-and-a-healthy-economy.html