BIDEN SPURS TAX CONCERNS
Promises `carbon adjustment fee'
Canada may no longer have to worry about a U.S. president imposing tariffs on the flimsy pretext of national security but Joe Biden's promise to impose a “carbon adjustment fee” has the Trudeau government scrambling to ensure that Canadian exporters are not hit by any new border taxes.
The president- e l e c t 's trade agenda calls for increased American content provisions, a $400-billion
Buy American procurement policy and a carbon adjustment tax to force countries exporting goods to the United States to meet climate and environmental obligations. “This adjustment would stop polluting countries from undermining our workers and manufacturers,” says Biden's platform.
Under Barack Obama, Canada was successful in obtaining exemptions from Buy American policies. The Trudeau government will hope Biden offers Canada a similar deal.
On a carbon border adjustment, Justin Trudeau can point out Canada has an economy-wide price on carbon, which is something the Americans do not have.
Biden's platform is silent on the subject of carbon pricing, instead focusing on a $2-trillion investment in infrastructure, electric vehicles, zero emission public transit and carbon-free power. Online news site Axios reported in August that, while Biden supports carbon pricing, he is unlikely to pursue the policy during the current recession.
The administration may yet argue that its planned renewable energy subsidies work like an effective carbon price.
Veteran trade lawyer Lawrence Herman suggested that a border adjustment fee will not be a tier-one issue for the new administration for a couple of years. Imposing it legally would require congressional approval.
Biden could use the same Section 232 provision that Donald Trump leaned on to impose his tariffs but that would open the new president to charges of hypocrisy.
That all suggests that a carbon border adjustment is not imminent. But it may be inevitable.
Support for concerted efforts to incentivize laggard countries to introduce their own carbon pricing is gathering steam.
The European Parliament supports the introduction of carbon border adjustment and its environment committee reported last month that a new tariff on energy-intensive imports like steel, chemicals and fertilizer should be imposed in 2023.
Janet Yellen, the former chair of the Federal Reserve, last month recommended the formation of “carbon customs unions” by countries that already have carbon pricing, as a way of introducing carbon adjustment fees while remaining compliant with World Trade Organization rules.
Gerald Butts, vice-chairman of Eurasia Group and Trudeau’s former principal secretary, said a global carbon price will emerge from the trade process, as countries prefer to keep their own revenues, rather than hand them over as tariffs.
The Trudeau government is aware that Canada’s energy industry is exposed.
The carbon intensity of a barrel of crude oil from the oilsands has fallen by nearly a third, and is set to fall further still, thanks to new technology. But the energy involved in turning the peanut butter-like bitumen into a more free-flowing product means oilsands oil still emits more carbon than the global average.
In particular, an estimate of upstream emissions by the journal Science suggested Canada’s oil output is more carbon intensive than
U.S. oil, even if certain California wells produce higher per-barrel emissions than the Canadian average.
It is possible that Canada could see the price of its product driven higher by tariffs, even before the Biden a dministration f ol l ows through on the promise to cancel the presidential permit to build the Keystone XL pipeline. The prospect has Canadian officials rushing to take pre-emptive action to ensure that any carbon border adjustment is North America-wide.
Herman said he is sanguine about the chance for Trudeau and Biden to agree on a common approach.
He said an adjustment tax would be aimed at manufactured imports competing with American domestic goods coming from countries like China. “It wouldn’t make sense to apply it to Alberta oil because it isn’t a manufactured product, it doesn’t compete with U.S. lighter crude and it is destined for export after refining in Houston. While admittedly there’s a greenhouse gas issue here, I think it can be finessed by the focus on manufactured goods,” he said.
The chances of that happening will be aided by the warm personal relationship between Justin Trudeau and Biden, established when the American was vice-president.
The prime minister said on Twitter that he talked to Biden on Monday. “We’ve worked with each other before — we’re ready to pick up on that work and tackle the challenges and opport unities f acing our two countries, including climate change and COVID-19,” he said.
The decision to invite the then-lame-duck vice-president to Ottawa for a state dinner during a December snowstorm in 2016 now looks positively inspired — though it looked less so at the time.
Biden’s praise for Trudeau as a defender of the “international rules of the road” was a red rag to the incoming president, Donald Trump, a bull who travelled with his own china shop.
But Canada may have cause to be grateful for that friendship, as it asks for presidential indulgence.
“There are lots of good relations (with the Biden camp),” said Butts, who was in Trudeau’s office when the vice-president came to the capital. “It’s incredible it was only four years ago. It feels like a century.”