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How protective are border carbon taxes for Canadian industry? The critical role of US emissions pricing

Author

Listed:
  • Christoph Böhringer
  • Thomas F. Rutherford
  • Eric Stewart

Abstract

Border carbon taxes are considered as an important instrument to promote sustainable practices abroad and to level the playing field for domestic emission‐intensive and trade‐exposed (EITE) industries. We find that US emissions pricing plays a critical role in the effectiveness of border carbon taxes in protecting the international competitiveness of Canadian EITE producers. Border carbon taxes are more effective when the US follows the other OECD countries with stringent CO2 emissions pricing than when the US abstains from emissions pricing. In the latter case, border carbon taxes reduce the competitiveness of Canadian EITE export supply to the US (Canada's most important export destination), weakening the initial protective effect of border carbon taxes on the Canadian domestic market. Dans quelle mesure les taxes sur le carbone aux frontières protègent‐elles l'industrie canadienne? Le rôle critique de la tarification des émissions aux États‐Unis. Les taxes sur le carbone aux frontières sont considérées comme un instrument important pour promouvoir les pratiques durables à l'étranger et mettre sur un pied d'égalité les industries nationales touchées par les échanges et rejetant de grandes quantités d'émissions. Nous constatons que la tarification des émissions aux États‐Unis joue un rôle essentiel dans la capacité des taxes sur le carbone aux frontières à protéger la compétitivité internationale des producteurs canadiens touchés par les échanges et rejetant de grandes quantités d'émissions. Les taxes sur le carbone aux frontières sont plus efficaces lorsque les États‐Unis suivent les autres pays de l'Organisation de coopération et de développement économiques qui appliquent une tarification rigoureuse des émissions de CO2 que lorsqu'ils s'abstiennent de le faire. Dans ce dernier cas, les taxes sur le carbone aux frontières réduisent la compétitivité des entreprises canadiennes touchées par les échanges et rejetant de grandes quantités d'émissions en ce qui a trait à l'approvisionnement pour l'exportation vers les États‐Unis (la plus importante destination d'exportation du Canada), ce qui affaiblit l'effet protecteur initial des taxes sur le carbone aux frontières sur le marché national canadien.

Suggested Citation

  • Christoph Böhringer & Thomas F. Rutherford & Eric Stewart, 2025. "How protective are border carbon taxes for Canadian industry? The critical role of US emissions pricing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 58(1), pages 4-39, February.
    • Handle: RePEc:wly:canjec:v:58:y:2025:i:1:p:4-39
    DOI: 10.1111/caje.12753
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    References listed on IDEAS

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    1. Hamidoğlu, Ali & Wang, Yuhao & Wang, Hao, 2025. "Transforming energy taxation policy: A dual cooperative game and stochastic frontier approach for sustainable transitions in Canada," Energy, Elsevier, vol. 337(C).

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