Canada Faces EU Carbon Tariff Threat With No Exemption in Sight, Documents Show

Canada could soon face a carbon tariff from the European Union as the bloc moves to fully implement its Carbon Border Adjustment Mechanism (CBAM), according to internal federal documents obtained by CBC News through an access to information request.

The documents show that Canadian iron, steel and aluminum will not be exempt from the charge, despite Canada's national carbon price and its decade-old trade deal with the EU. A Global Affairs Canada memo signed on Dec. 10, 2025 describes the CBAM as a "border charge" or "effectively a 'carbon tariff.'"

The findings arrive as the Canada-EU Summit takes place this week in Montreal. Ottawa's diplomats are still trying to reach an agreement with Brussels before Canadian exporters face added compliance costs and before European importers begin paying a carbon charge at the border in 2027. Prime Minister Mark Carney said on Tuesday that the summit marks the start of negotiations for Canada to become a closer strategic partner to the 27-member bloc.

Global Affairs estimates that $2.8 billion worth of goods each year are exposed to the levy, mostly metals already affected by U.S. tariffs. The note warns of "risks" because the tariff is arriving just as Canada tries to diversify trade away from the United States and toward markets like the EU. It says overall exposure "appears modest," but that impacts "vary considerably across provinces and territories."

Newfoundland and Labrador and Quebec would be hit particularly hard. An annual average of $885 million in iron and steel exports from the Atlantic province, almost half of the total, is exposed. In Quebec, exposed aluminum, iron and steel exports come to about $792 million a year. The figures average data from 2021 to 2024, so exposure could grow as Canadian goods look for new buyers to avoid U.S. tariffs.

Experts say the change is significant. "It's a big deal conceptually," said Ross-Linden Fraser, an acting director at the Canadian Climate Institute. The mechanism is being applied at a low level and will ramp up fully by 2034, with the aim of encouraging exporters to cut emissions from industrial production. Canadian steel, aluminum, iron and cement exporters already face compliance costs, including measuring emissions embedded in their exports and having them reviewed by an accredited verifier. "That's a costly prospect," said Aaron Cosbey, an economist at the International Institute for Sustainable Development.

The EU exempts countries such as Switzerland, Norway and Iceland, and soon the U.K., because their carbon pricing is linked to or part of the EU Emissions Trading System. The briefing note says an exemption "is not currently possible" for Canada because its price is not linked to Europe's. It puts the EU carbon price at approximately $134 per tonne in 2025, compared with $95 per tonne in Canada. The Carney government's recent energy accord with Alberta weakened Canada's carbon price further. Countries with a carbon price will receive credit for it, but it is unclear how the EU will recognize Canada's.

Environment and Climate Change Minister Julie Dabrusin is attending the summit. Her office has said Canada is advocating for recognition of its industrial carbon pricing systems and streamlined approaches that avoid unnecessary administrative burdens. In an Oct. 22 interview, Dabrusin did not say whether negotiators were making progress. EU officials said both sides are working toward "the same kind of baselines, the same kind of processes," though what that means remains unclear.

The threat is spreading. The memo refers to "CBAM proliferation," noting that the United Kingdom, Australia, Japan and Turkey are developing or assessing similar mechanisms. Rio Tinto and ArcelorMittal declined to comment, but Canada Nickel sees an advantage. Its Timmins, Ont. project would use low-carbon electricity and carbon capture, and CEO Mark Selby said shipping millions of tonnes of steel to Europe would "translate into pennies per tonne over the long run."

Not all producers may fare as well. Cosbey estimates that by 2034, Canadian steel could cost an additional $150 per tonne. "That's more than 10 per cent of the price of a tonne of steel on the open market these days. So that's a significant cost," he said.