Proposed US and EU carbon tariffs could benefit Canada

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News of US Democrats pushing for a tariff on exports from high greenhouse gas emissions could benefit Canada’s participation in global efforts to make international trade greener.

Environment Secretary Jonathan Wilkinson told iPolitics in April that Canada would only introduce an import tax if the US did too. The 2021 budget states that the government will begin to consult key stakeholders and international partners on how to design and implement such a policy.

The Democrats’ $ 3.5 billion plan includes “polluter import fees” but does not go into detail. The controversial law is not guaranteed and would likely be negotiated both within the party and between Democratic and Republican lawmakers.

However, the Democrats have signaled their intention to use the reconciliation process, which will allow them to pass a bill without Republican support from Congress, as long as all Democrats vote in favor.

A “CO2 limit adjustment” was also mentioned in the US Trade Representative’s 2021 Annual report.

The adjustment relates to tariff-like charges levied on imports from countries that do not have a carbon pricing system or similar pollution reduction policy or whose systems are considered inadequate. It is designed to protect domestic industries in countries that are taking action to combat climate change. In theory, it would give other countries an incentive to reduce their emissions so that their exports are not subject to the additional costs. It would also make it more costly for industries to move from one country to another that is not taking the necessary measures to address climate change.

READ MORE: Canada will soon pursue bilateral climate action with the Biden team, says the ministerial minister

Despite Wilkinson’s comments, pushing a North American price on emissions at the border will be difficult, if not impossible, said Aaron Cosbey, an economist with the International Institute for Sustainable Development.

The US can’t really make a real CO2 limit adjustment because it doesn’t have a carbon price, ”he said.

But there are ways around that, Cosbey told iPolitics on Friday. For example, the US could apply low carbon standards to certain industries and apply the same standard to the border, he said.

Given the urgent need to address climate change, adopting different policies might be the best strategy, said Jennifer Winter, an economics professor at the University of Calgary who specializes in environmental policy.

It’s a situation where perfect is the enemy of good, ”said Winter. “IActually, the policy would be perfectly consistent, but we are out of this world. S.o in order to move politics forward, we have to accept compromises and differences. “

While moving forward without the US is risky, Canada cannot afford to wait, Cosbey said.

“AIt’s unfortunate that it’s out of sync with our largest trading partner, we can’t wait, ”he said. “There is no way they can wait for the US to put their system in place if they ever get one for us to trade in Canada.”

The European Union also announced its own adjustment of the CO2 limits, which puts it ahead of all other jurisdictions. The policy has yet to be negotiated by the 27 EU member states and government agencies.

At last week’s G20 meeting, Finance Minister Chrystia Freeland had one Conversation about CO2 limit adjustments with Paolo Gentiloni, her EU colleague.

If the EU adjustment is implemented, it will initially target emission-intensive industries such as steel and cement, as their emissions are easier to track. It will be difficult to make border adjustments on products whose manufacturing process and supply chains cause environmental pollution that is difficult to quantify.

Canada will likely be isolated from additional fees for exports to Europe because of our federal carbon price, Winter said.

The move of the EU and other countries is seen as a way of bringing China to the world largest exporter and Emitter of greenhouse gases (GHGs).

To this end, China opened its first nationwide carbon trading market on Friday. It is part of China’s plan to be carbon neutral by 2060 that Chinese President Xi Jinping announced to the UN in September.

The regime sets GHG emission quotas for companies and is similar to a cap-and-trade system. If a company exceeds its quota, it has to buy a permit from a more energy-efficient company.

The emerging regime only applies to China’s energy industry, which is responsible for about 40 percent of the country’s greenhouse gases. Overall, China emits around 10 gigatons of greenhouse gases annually, twice as much as the USA and 20 times as much as Canada.

Despite rapid progress in Europe and the US, other countries are skeptical of the proposals.

After meeting in April to discuss climate change, China, India, Brazil and South Africa, expressed “Great concern” about “the proposal to introduce barriers to trade”, including the adjustment of CO2 limits.

The adjustments could also run into problems at the World Trade Organization (WTO), as it prohibits countries from pursuing discriminatory trade policies. Some might argue that border adjustment is synonymous with protectionism, which is against WTO rules.

In one current reportthe European Parliament has presented a plan for border adjustments that is compatible with WTO rules.

“It is found (as) discriminatory but rescued by Article 20 (of the WTO), which allows environmental action,” Cosbey said.

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