International Trade Committee on Dec. 2nd, 2024

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Supplementary to that question, how can the federal government work with the provinces and the territories to implement BCA measures to mitigate these risks effectively? Earlier, we were talking about the forest industry and how the provinces and the feds think different things.

[Michael Mosier]

That's another good question. I think that ultimately it would be tariff policy, so it would be a federal jurisdiction, but I think there's certainly a role for the provinces to play. A number of the provinces have their own carbon pricing regime, and I think that any border carbon adjustment Canada may adopt would need to be reflective of the various carbon pricing regimes we have in Canada. There are numerous regimes, depending on the province and territory. I think there would need to be some work there to make sure that a border carbon adjustment reflected the carbon price.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

What kind of incentives or supports might the government provide to help emission-intensive industries transition without compromising jobs or trade, other than what we did at Algoma Steel?

[Michael Mosier]

It's a little beyond me as a trade policy expert to talk about government supports and subsidies.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

[Inaudible—Editor] kind of thing to look at?

[Michael Mosier]

I think so.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

On implementing this, what are the risks that the Government of Canada has if it implements this to its industries?

[Michael Mosier]

I'll go back to what we heard in consultations, because I think it was interesting to hear some of the risks that were raised.

Certainly I think some of the risks are with respect to the U.S. These are the key ones. The U.S. does not have a border carbon price. If Canada implemented one, we would ostensibly be applying a border carbon price to imports from the United States. I think what we heard from a lot of Canadian industry was that there are concerns about potential retaliation from the United States if Canada implemented something like that.

We also heard about administrative complexity and just the compliance burden, noting that Canada does have a number of different carbon prices, and how that would be complied with. It is a very large data-gathering exercise, so there was concern about that.

Then, of course, there are downstream impacts. To the extent that a border carbon price applies to our imports, which are used by industry and ultimately purchased by consumers, that can have the impact of raising those costs as well.

There were a number of risks to Canada.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll go to Mr. Savard-Tremblay for six minutes, please.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Madam Chair.

I'd like to thank the witnesses for being here and for their remarks.

First of all, we know that in 2020, there was the interim report on the pan-Canadian approach to pricing carbon pollution. On the risk of carbon leakage and loss of competitiveness, it says that “tools and policies used to date in existing carbon-pricing systems appear to have successfully addressed this risk.”

However, the report also mentions that, since the carbon price will increase by $170 per tonne by 2030, additional measures may become necessary.

To your knowledge, has an assessment of these potential necessary measures been done since the report was published? Do we have any figures on carbon leakage, for example? If not, are additional measures planned?

[Emmanuelle Lamoureux]

For the sake of clarity, I would like to know if your question is about the national level, rather than international.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

You can answer it as a whole. Everything is fairly interconnected on the planet.

[Emmanuelle Lamoureux]

All right.

I haven't looked at the report you're referring to. However, in terms of additional measures, I assume that the mechanism being implemented by the European Union and currently under consideration by other countries is among the kinds of tools in the toolbox for any country that wants to continue to limit risks. That is what we are currently seeing in other countries.

For our part, we are keeping a very close eye on the proliferation of this type of regime, because we want to avoid it becoming too much of an administrative burden for our exporters. In that regard, Canada participates in international discussions to ensure the interoperability of carbon border adjustment mechanisms.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

I know you said you weren't familiar with the report, and that is fine, but I'll come back to it. The report emphasizes that, if there are gaps between Canada's measures and those of key trading partners, a coordinating mechanism must absolutely be put in place to avoid harming Canada's competitiveness.

To your knowledge, are there any partners in particular with whom there are glaring and major gaps? What are the impacts of these gaps?

[Emmanuelle Lamoureux]

I can tell you that there are discussions at all levels, with all countries that are considering implementing a CBAM or are in the process of doing so. The goal is to avoid this kind of gap and to ensure that the carbon price paid by exporters in Canada is fully recognized at borders, particularly those of the European Union and other countries that are considering adopting similar measures.

That work is being done through our embassies, but I know steps were taken at all levels, including the minister's and Prime Minister's. Significant coordination work is therefore being done, not only at the bilateral level, but also at the multilateral level, to facilitate interoperability.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Aren't there some grey areas in these potential measures?

Let's take nuclear power as an example. This form of energy produces very few carbon emissions, but it can have very significant environmental impacts. Couldn't an elephant enter the room, in spite of everything?

[Emmanuelle Lamoureux]

Based on what it has told us, the European Union has decided, for the time being, to stick to the sectors I mentioned. It is not out of the question that it may decide at another time to apply the measure to a greater number of sectors—I believe it intended to consider it—but that will not happen before the coming into force scheduled for January 1, 2026.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

As a result, a measure would be put in place on January 1, 2026 for those sectors. I imagine we can expect that it will take some time to plan such an assessment.

For your part, if the European Union implements the measure on July 1, 2026, how much time are you anticipating for that implementation in your program?

[Emmanuelle Lamoureux]

The start date for the second period is indeed January 1, 2026.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

What would your program be?

[Emmanuelle Lamoureux]

Our program is constantly evolving. We have been working with the European Union since we learned that it intended to put this measure in place to ensure that the interests of Canadian exporters are defended, that the price paid in Canada is recognized and that it is done in a fair and equitable manner for our exporters.

The intent behind this is to level the playing field, meaning to ensure that there is no carbon leakage. We are meeting that target. The EU wants to make sure that Canadian exporters are not at a disadvantage.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Desjarlais, you have six minutes.

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

Thank you very much, Madam Chair.

Thank you to the witnesses for being present for the study today.

You spent a lot of time on the carbon border adjustment mechanism. Part of what I think your departments and many of those engaged in international trade on behalf of Canada are aware of is the huge commitment relative to the Paris climate change accord. At that time, many signatories, of course, had committed to this global pricing mechanism that would look at transfer of goods beyond borders and look at carbon pricing between borders.

Where and what, if anything, are some of the concrete foundational principles of a global framework? Does the European Union's process recognize those principles or create fairness, or does it actually do the opposite?

[Emmanuelle Lamoureux]

I think a portion of your question would be better answered by Environment and Climate Change Canada.

I'm sorry. Can you repeat the last portion of your question? I think I would be able to answer that.

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

Sure.

Let's call it a precedent that's been set by the European Union, in some ways. Is their process of adjustment beneficial for trading partners that have existing trading relationships, or is that actually hindering trade?