It is hard to imagine a scenario in which such tariffs do not make life more expensive for ordinary Canadians.

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At their virtual summit last month, Justin Trudeau and Joe Biden discussed how Canada and the United States could partner on future projects. Trudeau’s punch against Donald Trump – “American leadership was sorely missed” – grabbed all the headlines, but there was another important political discussion that will likely have bigger implications. Trudeau and Biden have both hinted that Canada-US climate cooperation could include “carbon adjustments” on goods imported from high-emission countries.

Carbon adjustments, often referred to as carbon tariffs, are levies on goods from countries that do not maintain our level of environmental protection. Their main objective is to avoid “carbon leakage”, in which companies move to countries that do not impose carbon costs.

No one knows how high a carbon tariff would be, but it seems likely that it would be imposed at the rate of our own federal carbon tax. A background approximation using the example of Chinese and Indian steel imports shows that the impact would be significant. In 2019, Canada imported 612,000 metric tons of steel from India and China. The emissions associated with these imports are approximately 1,132,200 tonnes of carbon dioxide, using McKinsey’s estimate of 1.85 tons of carbon dioxide per metric ton of steel produced.

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Chinese and Indian steel would likely not have to pay the full weight of the carbon tax on each tonne of CO2, because we exempt 80 to 90% of our domestic industry’s emissions and, to be non-discriminatory, the rate adjustment. should be the way we treat domestic producers. However, even with an 85 percent exemption rate, a carbon tariff would be costly. At this rate, 169,830 tonnes of CO2 related to these imports would be subject to the tax, which is currently $ 40 / tonne. This gives a cost of over $ 6.7 million. At the 2030 rate of $ 170 / tonne, it climbs to over $ 28.8 million.

Apply this technique on a long list of other products from these and other large emitters and the costs become substantial.

Beyond cost, however, there are also a number of logistical hurdles, which have been described in a report submitted to the European Round Table on Climate Change and Sustainable Development. The report favors carbon adjustments but advises approaching them with caution. He points out that adjustment income can be kept in the domestic market or sent abroad. Neither option is problem-free.

If the money is kept in Canada, one option would be to refund it to Canadian businesses – although giving Canadian businesses the revenue generated by taxing the sale of their competitors’ products seems unfair. In many cases, this would also mean inflating the price of products from developing countries like India to protect the industry of developed countries.

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If this is a problem, the rebate could be returned to Canadians, preferably through a revenue neutral rebate program like the one that is typically used to recycle our domestic carbon tax – although deployment issues mean it has yet to be revenue neutral. . In addition, the Parliamentary Budget Officer estimates that 40% of 100% of Canadian families pay more in carbon taxes than they receive in rebates.

Sending the rebate back to high-emitting countries or global climate funds to help decarbonize, as suggested in the report to the European roundtable, isn’t much more appealing. Sending tax revenue overseas is unlikely to be right for Canadians who have spent the last year worrying about the impact of the pandemic on their financial futures. It would also run counter to the Prime Minister’s December promise not to raise taxes to deal with the deficit.

Rather than take a look at Trump’s leadership, Trudeau should instead have looked at Trump’s trade record and how dire tariffs can be. Trump’s tariffs on imported washing machines, for example, caused a 12% increase in prices, around $ 88 / unit, which created an additional $ 1.56 billion in costs for consumers. (Americans buy a lot of washing machines!)

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Proponents of tariffs would argue, as Trump did, that inflated prices are worth it to develop domestic industry and create jobs. Trump’s tariffs created manufacturing jobs in the United States – about 1,800 new positions. The problem is that these jobs have cost American consumers a huge amount: $ 811,000 per job created, which is far from passing a cost-benefit analysis. Carbon adjustments, no matter how well-intentioned, are likely to involve similar numbers.

Carbon tariffs are difficult to calculate and open to abuse by rent-seeking protectionists. It is hard to imagine a scenario in which they do not make life more expensive for ordinary Canadians. There must be a better path to carbon neutrality, a path that does not imply a drastic increase in import costs.

David Clement is Director of North American Affairs at the Consumer Choice Center.

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