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Canada is facing a carbon tariff threat from the European Union within months as the bloc fully implements its Carbon Border Adjustment Mechanism (CBAM), according to internal documents obtained by CBC News through an access to information request.
The documents show that Canadian iron, steel and aluminium are not exempt from the carbon tariff, even though Canada has a national price on carbon and a decade-old trade deal with the European Union. A memo from Global Affairs Canada, signed on December 10, 2025, describes the CBAM as a "border charge" or "effectively a 'carbon tariff.'"
Global Affairs estimates that $2.8 billion worth of Canadian goods a year are exposed to the levy, mostly metals already hit by United States tariffs. The internal note says Canada's overall exposure "appears modest" but warns the "potential impacts vary considerably across provinces and territories," hitting Newfoundland and Labrador and Quebec particularly hard: an annual average of $885 million in iron and steel exports from Newfoundland and Labrador — almost half of the province's total — and about $792 million in aluminium, iron and steel exports from Quebec are exposed.
The reason Canada is not exempt is that its carbon pricing system is not linked to Europe's carbon market. The EU has exempted countries such as Switzerland, Norway, Iceland and the United Kingdom because their systems are linked to its emissions trading system; Canada's is not, with the EU carbon price at about $134 per tonne compared with about $95 per tonne in Canada. The briefing note states that an exemption is "not currently possible" for Canada.
The CBAM's definitive phase began on January 1, 2026, covering iron and steel, aluminium, cement, fertilisers, electricity and hydrogen. European importers will have to pay the carbon charge at the border in 2027: certificate purchases begin through the EU's central platform in February 2027, and the first declaration and certificate-surrender deadline for 2026 emissions is September 30, 2027. Canadian exporters are already incurring compliance costs for measuring emissions and having them verified, and economist Aaron Cosbey notes the additional cost could reach $150 per tonne of steel by 2034, more than 10 per cent of the current market price, as free EU allowances are phased out through 2034.
The timing is sensitive because Canada is seeking to diversify trade away from the United States and toward markets like the EU. The internal note flags "risks" with the tariff arriving as Canada pursues that shift, and as Canadian exports to Europe rise. Ottawa's diplomats are continuing to seek an agreement with Brussels before exporters face the additional costs, with the Canada-EU Summit taking place in Montreal on October 29–30. Prime Minister Mark Carney said on Tuesday that the summit marks the start of negotiations for Canada to become a closer strategic partner of the 27-member bloc, and Environment and Climate Change Minister Julie Dabrusin has emphasised Canada's advocacy for recognition of its industrial carbon pricing system.
The development has raised questions about whether Carney will use Europe's demands as a reason to introduce a new Canadian carbon tax on imports, which would potentially raise costs for Canadian businesses and consumers. Canada currently has no border carbon adjustment: Finance Canada opened a consultation on the idea in 2021, but no decision and no legislation has followed. Carney scrapped Canada's unpopular consumer carbon tax in April 2025.