Thanks, Chair.
Thanks for the opportunity to speak with you today. I'm Aaron Cosbey, a senior associate with the Winnipeg-based International Institute for Sustainable Development. I also chair the Canada-based Commission on Carbon Competitiveness. I've worked for almost 15 years in Canada and internationally on the subject of border carbon adjustment—that sounds sad, actually—including over a dozen reports on the specific elements of the EU CBAM.
I'll speak to you today on two themes. The first is on the context for this session, which I argue is in fact a broader reality than just the EU CBAM and should compel us to focus on these questions. The second is on the ways in which Canada's industrial carbon pricing regime, the OBPS, relates to that broader reality.
First, on the context, the EU CBAM, as you've heard, is now in effect. It will start levying charges on an increasingly stringent scale from 2026 to 2034. It is the first border carbon adjustment regime to come into effect, but it will not be the last. The U.K. has already announced that it will have one in place as of 2027. Australia is in the final stages of consultation on whether it should have a similar mechanism. Chinese Taipei actually has one in law, but it's not yet enacted. Critically important, given that our energy-intensive trade-exposed sectors export overwhelmingly to the U.S., there are four different bills before the 118th Congress in the States that propose some type of border climate-based charge. Several of those bills will be introduced in the next Congress. Some look like they may find bipartisan support.
Moreover, it's not just a matter of border carbon adjustments. BCAs are just one of a suite of measures in the coming green wave that will restrict trade based on the carbon content of goods. Look at the EU's methane regulations, which will affect any gas exports. Look at the buy clean standards in U.S. public procurement. Look at deforestation-free product rules coming in the EU and proposed in the U.K. and the U.S.
These are all relatively recent measures. It's worth asking why the sudden rush of such policies. It is an inexorable trend. It starts with increasingly serious climate change impacts, which translate into increasingly serious climate change policies worldwide. When countries increase their ambition, they need to think about the competitiveness of their domestic firms vis-à-vis firms in other countries that don't face the same climate regulations. That leads us to trade-related climate measures. This is not a static situation. It's a trend. We will see more such measures.
Why does this matter to Canadian exporters? To state the obvious, it means that in our first-, third- and fifth-biggest trading partners, measures are being implemented or contemplated that will, one, punish producers of industrial goods with large carbon footprints, and two, reward national policy efforts to price carbon.
Let me break down those two dynamics a bit. First, the more GHG-intensive our production of steel, aluminum, cement and fertilizers, the more those goods will be charged at the border of any country with a border carbon adjustment or some other such measure. Fortunately, as Catherine Cobden and others have already told you, at the moment our production of goods like steel and aluminum is relatively clean, but the incentives still exist even for our clean producers. The more they can reduce their GHG intensity, the less they're going to pay. Second, measures like the EU and U.K. CBAMs are going to grant credit at the border for a carbon price paid in the country of export.
Let me turn now to how Canada's existing industrial carbon pricing, the OBPS, relates to all that. It helps in both respects. First, it provides incentives to reduce the industrial GHG pollution in those firms, which will lower the border charges payable for Canadian exporters. Second, it lowers the border charges again, because Canadian exporters will have already paid a carbon price. They will be credited for that.
Just to be clear on an important detail, the credit that the CBAM is going to offer will not be the full federal backstop price. To protect our firms against carbon leakage, the OBPS has output-based allocation, which lowers the average cost of carbon paid by the carbon firms. It's likely that this much lower average cost will be what gets credited.
In closing, let me reiterate that we will be seeing many more such measures, similar to the EU CBAM, that restrict trade based on the carbon content of goods. Our existing industrial carbon pricing scheme helps our exporters prosper in a world full of such measures, both by helping them reduce their GHG emissions and, therefore, face lower charges and secure more markets, and also by lowering the charges that are due to them based on the credit for a carbon price already paid.
Thank you. I look forward to our discussion.