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GOLDSTEIN: Mark Carney’s ‘carbon border adjustment mechanism’ will cost you

When governments put a price on something they have not put a price on before, someone has to pay it and it is inevitably the public

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When Prime Minister Mark Carney announced he would reduce the Liberal government’s consumer carbon tax to zero, he also promised to introduce a “carbon border adjustment mechanism.”

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He described the CBAM as a new government measure to “promote fair competition and improve environmental outcomes” while “supporting Canadian jobs in … energy-intensive, trade-exposed sectors, such as steel, chemicals, cement, and aluminum.”

GOLDSTEIN: Mark Carney’s ‘carbon border adjustment mechanism’ will cost you Back to video

What it means, assuming it happens, is that the Canadian government will impose tariffs on imported goods from countries that don’t have a national carbon pricing scheme comparable to Canada’s – currently $110 per tonne of industrial greenhouse gas emissions rising to $170 per tonne in 2030.

The increased retail prices for these goods resulting from these new tariffs will be paid for by Canadian consumers purchasing these products.

Some or all of this increased revenue for the government may be given in rebates to Canadian companies exporting their goods to foreign countries with little or no carbon pricing regimes, in order to make their goods more price competitive in those markets.

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The purpose of a CBAM is to prevent “carbon leakage” where companies located in a country with stringent carbon prices close down operations and move to other jurisdictions with less stringent or non-existent carbon pricing.

There’s no free lunch

As with all carbon pricing regimes, there is no free lunch.

When governments put a price on something they have not put a price on before – in this case industrial greenhouse gas emissions – someone has to pay it and it is inevitably the public in the form of higher taxes or retail prices.

During last year’s federal election campaign, Carney predicted the CBAM would initially raise $100 million in government revenues starting in 2027, rising to $400 million in 2028, with no estimates provided after that.

More details of the plan, which Carney hasn’t released yet, would be required to determine the longer-term financial impact of the CBAM on Canadian consumers.

But since the U.S. under President Donald Trump doesn’t have a national carbon price – along with many other countries – it’s conceivable these tariffs could be applied to imported goods from the U.S., which accounts for about half of all Canadian imports, in addition to imported goods from other countries that lack carbon pricing schemes.

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The European Union introduced a CBAM at the start of this year and given Carney’s goal to double non U.S. exports within a decade, creating a similar system in Canada may now be inevitable.

Critics point to a wide range of problems with the CBAM including the high administrative costs of creating the system, increased costs faced by manufacturers, retaliatory tariffs imposed by countries outside the CBAM system and potential violations of World Trade Organization laws as a protectionist measure, rather than an environmental one.

Some studies have suggested the CBAM is inefficient because it mainly shuffles global emissions to different countries rather than eliminating them, while imposing higher costs in particular on developing nations.

In assessing the likelihood of the CBAM succeeding, Canadians should keep in mind the failure of the previous Liberal government’s climate change strategy under Justin Trudeau.

That has cost federal taxpayers more than $200 billion, or about $5,000 per Canadian, funding 149 programs administered by 13 federal departments, which failed to meet a single emission target set by the previous Trudeau government.

Add in the estimated cost of $303 billion for 364 provincial and territorial climate programs (excluding municipal ones) and the total estimated cost rises to more than $500 billion, or $12,000 per Canadian.

During last year’s election, Carney also promised “new consumer incentives to lower costs for families investing in our clean future,” but those have yet to be announced.

All of this in a country that produces 1.5% of global emissions, which would not materially impact climate change if we were to eliminate all of Canada’s industrial greenhouse gas emissions tomorrow.

Meanwhile, our inability to market our vast natural gas resources globally – beyond a relative trickle because of years of government dithering about building pipelines – means we’re not doing the one thing we could do to help dramatically lower global emissions, by replacing coal-fired electricity with natural gas, which burns at half the carbon dioxide intensity of coal.

While Canada produces only 6% of its electricity from coal, in China – the world’s largest consumer of coal – it’s over 50%, and in India over 70%.

lgoldstein@postmedia.com

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