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Proposed carbon tariffs for the US and the EU could benefit Canada

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News that Congressional Democrats in the US are pushing for a tariff on exports from countries with high greenhouse gas emissions could benefit Canada’s participation in a global effort to make international trade more friendly to the weather.

Environment Minister Jonathan Wilkinson told iPolitics in April that Canada would only adopt an import levy if the United States adopts it as well. The 2021 budget said the government would start consulting with key international stakeholders and partners on how to design and implement such a policy.

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

However, Democrats have indicated their intention to use the reconciliation process that allows them to pass a bill in Congress without the support of Republicans, as long as all Democrats vote in favor.

A “carbon frontier adjustment” was also mentioned in the US Trade Representative’s 2021 post. annual report.

The adjustment refers to tariffs, similar to a tariff, that are applied to imports from countries that do not have a carbon pricing system or similar pollution mitigation policies, or their systems are considered inadequate. It is intended to protect domestic industries in countries taking action to combat climate change. In theory, it would incentivize other countries to reduce emissions so that their exports are not subject to additional costs. It would also make it more costly for industries to move from one country to another that is not taking necessary action against climate change.

READ MORE: Canada will soon seek bilateral climate action with Biden’s team, says minister

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

The United States can’t really do a carbon adjustment at the border, because it doesn’t have a carbon price, ”he said.

But there are ways around it, Cosbey told iPolitics on Friday. For example, the United States could apply low-carbon standards to specific industries and apply the same standard to the border, he said.

Accepting different policies, whatever they are, might be the best strategy, given the urgent need to fight climate change, said Jennifer Winter, an economics professor at the University of Calgary who specializes in environmental policy.

It’s a situation where the perfect is the enemy of the good, ”Winter said. “I.In general, there would be complete coherence in News Block, but we are not in that world. S.Or, for the sake of advancing News Block, (we will have to accept) compromises and differences. “

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

“TOAs unfortunate as it is to lose sync with our biggest trading partner, we can’t wait for that, ”he said. “There is no way I can wait for the United States to implement their system, if they succeed, for us to act in Canada.”

The European Union also announced its own adjustment to the carbon frontier, putting it ahead of all other jurisdictions. The policy has yet to be negotiated by the 27 EU member states and government bodies.

At last week’s G20 meeting, Finance Minister Chrystia Freeland had a conversation about carbon frontier adjustments with Paolo Gentiloni, his EU counterpart.

If implemented, the EU adjustment will target emission-intensive industries like steel and cement first, because their emissions are easier to track. Border adjustments will be difficult to apply to products whose manufacturing processes and supply chains produce contamination that is difficult to quantify.

Canada is likely insulated from any additional tariffs on exports to Europe due to our federal carbon price, Winter said.

The move by the EU and other countries is seen as a way to target China, the largest exporter other greenhouse gas (GHG) emitter.

In an effort to cut its emissions, China opened its first national carbon trading market on Friday. It is part of China’s plan to be carbon neutral by 2060, which Chinese President Xi Jinping announced at the UN in September.

The scheme establishes greenhouse gas emission quotas for companies, and is similar to a cap-and-trade system: if a company exceeds its quota, it must purchase a permit from a more energy-efficient company.

The nascent 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 a year of GHG, twice what the United States emits and 20 times more than what Canada emits.

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

After a meeting they had in April to discuss climate change, China, India, Brazil and South Africa. voiced “Serious concern” about “the proposal to introduce trade barriers”, including carbon border adjustments.

The adjustments could also create problems in the World Trade Organization (WTO), because the latter prohibits countries from implementing discriminatory trade policies. Some might argue that a border adjustment is tantamount to protectionism, which contravenes WTO rules.

in a recent report, the European Parliament presented a border adjustment plan that is compatible with WTO rules.

“It will be considered (to be) discriminatory, but it will be saved by Article 20 (of the WTO), which allows environmental measures,” Cosbey said.

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