Policy Forum: Border Carbon Adjustments—Four Practical Challenges

Abstract

For Canadian policy makers, the relatively straightforward economics of a border carbon adjustment (BCA) is complicated in practice by four challenges. First, Canadian carbon-pricing regimes have been developed from the bottom up, being primarily designed at the provincial rather than the federal level. Second, a Canadian BCA must comply with international trade law. Third, while carbon taxes are applied on the carbon emitted at each stage of every industrial process, applying a BCA on each process and at each level of a value chain is extremely difficult. Fourth, there is the question of what to do with any revenues that a BCA generates. The key conclusion that emerges from the discussion in this article is that the federal nature of Canada will be an early and significant challenge for policy makers. Given that Canadian provinces have led the development of carbon-pricing schemes, it seems likely that most will continue to want to do so. Any BCA regime (which will necessarily be implemented at the federal level) will have to find ways to accommodate or account for the differences in provincial carbon-pricing regimes. That accommodation may not be impossible, but it will not be easy.