Question Period Note: Border Carbon Adjustments (BCAs)

Progress on Canada's domestic consultations and international engagement on the possible use of border carbon adjustments as an additional measure to address carbon leakage.

• Our government is exploring border carbon adjustments as measures to ensure that Canada's transition to a low carbon economy is achieved in a way that is fair and predictable for Canadian businesses, and supports Canada's international competitiveness.

• Consultations with Canadians and targeted stakeholders will help inform our ongoing work in exploring border carbon adjustments.
• Canada has also championed international discussions on how trade policy can address carbon leakage, including through the use of border carbon adjustments.
• We are also engaging with the European Union on its proposed Carbon Border Adjustment Mechanism regulation to ensure that Canada's carbon pricing is recognized and the impacts to Canadian exporters are minimal.

In the 2020 Fall Economic Statement, the government announced its intention to explore the potential of border carbon adjustments and to work with like-minded economies to consider how this approach could help Canada meet its climate targets and ensure a fair environment for businesses. Budget 2021 announced the Government's intention to engage in domestic and international consultations on BCAs.

Finance Canada, supported by Global Affairs Canada, Environment and Climate Change Canada and other departments, is in the final stages of assessing the feasibility and potential design options of a domestic BCA. Initial consultations with provinces and territories took place in August 2021. Targeted consultations with exporters and non-governmental organizations are expected to conclude by the end of the year.

On July 14, 2021, the European Commission released a draft Carbon Border Adjustment Mechanism (CBAM) regulation that would impose a carbon charge on specific imported goods in the iron and steel, cement, fertilizer, and aluminium sectors. The EU CBAM is expected to be in place by January 1, 2023 beginning with a three-year transition period where no carbon charge would be imposed, before full implementation on January 1, 2026. Canadian officials are engaging with their EU counterparts to minimize possible impacts from a CBAM to Canadian exports.

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