Thank you for the opportunity to address the committee today.

My remarks will focus on the rising risks of border carbon adjustments and the role of Canadian carbon pricing systems, or large emitter trading systems. They are trading markets, after all, and they're designed to reduce costs through trading. They're markets, basically. These systems are an effective shield, I'm going to argue, and there's a need for stronger federal-provincial coordination to put our best foot forward to coordinate action to minimize costs on industry and reduce risk.

I'm the principal economist with the Canadian Climate Institute. I've run EnviroEconomics, a small consultancy, for decades. I'm a commissioner with the Canadian Commission on Carbon Competitiveness, and I've worked with most governments on designing large industrial emitter systems, so I understand how they operate and what they're trying to do at a practical level.

BCAs are a growing risk to Canadian exports. BCAs are rapidly reshaping global trade, as you've heard a lot. Mechanisms like the EU's CBAM and the U.S.-proposed PROVE IT act all represent a growing trend towards linking climate policy and trade policy. While these measures aim to reduce carbon leakage and level the playing field, they present growing risks to Canada's very export-oriented economy. We do very well through open trade, don't we?

What do these risks look like?

Currently under CBAM, we figure that about $64 million in tariffs is likely to be levied against about $3 billion and change of exports going into the EU. This is across 81 product groups and represents a cost increase of about 1.6% against the value of exports. It doesn't look like a significant risk now, but that risk jumps significantly with our roughly $30 billion in trade with the EU, raising potential costs—if everything gets covered—to about $1 billion in tariffs looking out into the future. It's not small at all.

The proposed U.S. PROVE IT act could take an even broader perspective here by assessing the GHG intensity of a broader suite of commodities. We're looking at about 200 products—about 180 products listed in the bipartisan PROVE IT act—covering about 30% of our trade or more. It's really hard to nail down, but when you look at the product categories, it's about $30 billion in trade.

If the PROVE IT act pushes forward, there will be a lot of regulatory red tape on disclosing emission intensity for a big chunk of our exports, including aluminum, crude, fertilizers and critical minerals. Importantly, the act expands coverage to manufactured commodities—not just the raw steel, but the steel products, and not just the raw clinker, but cement products. It's fairly significant in its scope. This evolving landscape underscores the need for Canada to respond strategically, basically, to protect industries, maintain market access and reduce risks.

The large industrial emitter programs—the large emitter trading systems—are a shield against these tariffs. Despite these challenges, Canada has a significant advantage in these systems. Programs like Alberta's TIER program, the federal output-based pricing system and all the provincial and territorial systems across the country are there, and they can protect against punitive charges.

Why are they a good shield?

First, these federal-provincial systems are designed to impose only a modest cost. We've done a whole bunch of work on that, and you can look at our website and see what the average costs are for industry. They're not that significant. I'm happy to talk about that later. Yes, there are costs, but they're not off the charts.

Second, many sectors benefit through saleable credits. These systems are designed to help the large emitters. They're given generous credits, which are saleable. In a lot of cases, industry is making more than they're having to pay, so it's not just a bad-news story for everybody.

Finally, they're reducing emissions. They're doing their job. Yes, they need tweaks, and yes, they can be improved, but it's a continuous improvement process we see rolling forward.

The balance between reducing emissions and maintaining competitiveness is a core strength of Canada's approach, and it's essential that foreign trading partners and policy-makers in other countries come to understand what we're doing in our country with these programs.

I'm going to speak to federal-provincial policy coordination and how it can reduce the risk.

While the large emitter trading systems provide a strong foundation, there's more work to do. To maximize the effectiveness of these programs and mitigate the risks posed by the BCAs, Canada needs better coordinated action. I know we're in a federation and I know we're fragmented, but it's trade and industry.

What does that look like?

First, it's unified data and messaging—the nuts and bolts of the systems. What does that look like? Governments have a role here to highlight that to our partners. Canada must present clear, consistent data about our systems and the costs industries are already paying. This helps trading partners understand what we're doing and the costs we're imposing.

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