Striking first

Why Canada could beat Europe to a carbon border levy

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The decision by Justin Trudeau to fall on his sword and not seek another term as Canadian Prime Minister, coupled with Donald Trump’s belligerence to America’s northern neighbour is likely to result in a smarter application of carbon markets, and an acceleration in the use of carbon border levies.

Let’s start off with carbon markets. All three leading candidates for the Liberal Party leadership have backed away from the fuel charge, the so-called ‘price on pollution’ that puts a carbon tax on 21 different fuels; either pledging to cancel it altogether (the position of Mark Carney and Chrystia Freeland), or at least freeze it (Karina Gould). In one stroke this has eliminated the key battleground issue upon which opposition leader, Pierre Poilievre was waging the election battle: ‘Axe the tax!’ (see Why Canada should reform its carbon tax).

The second component in Canada’s current carbon pricing legislation, the large emitter trading system (LETS), does not have the same political risk attached. It applies to large industrial producers on their non-fuel based production emissions. As with the fuel charge, the carbon price applicable to LETS now rises by C$15 per tonne (€10) each year, from C$80 per tonne currently (€53), until it reaches C$170 per tonne (€115) in 2030. Neither of the main parties have said they want to reform the policy, and that’s a good thing because LETS is by far the most effective policy instrument Canada has in place to cut its emissions.¹

The latest opinion polls also show a big narrowing in the Conservative lead over the Liberals, from 25 points in late 2024, to just 10 points in mid-February. No date has been set for the general election, but it will need to take place by 20th October 2025. Another poll suggests that if Carney does win the leadership contest the lead would be wiped out. A Leger survey suggests a Carney-led party would boost Liberal support and put them in a dead heat with the Conservatives.