Canada’s industrial carbon price gives exporters an edge under the EU’s Carbon Border Adjustment Mechanism

As Prime Minister Carney looks to diversify trade beyond the United States, a new EU policy could help deepen trade relations between the two markets. The EU’s Carbon Border Adjustment Mechanism (CBAM)highlights how strong domestic carbon policy can improve the competitiveness of Canadian products abroad. 

In short

• CBAM applies to steel, cement, aluminum, fertilizers, electricity and hydrogen. 
• Canadian exports are expected to face low-or no-additional costs thanks to our industrial carbon price and clean electricity grid. 
• Canada is ahead of most of the EU’s top trading partners, who will face the full or partial CBAM.
• As CBAM costs increase over time, Canadian products could become increasingly cost-competitive.  

What’s a Carbon Border Adjustment Mechanism?

CBAM is the EU’s solution to “carbon leakage”, when production moves to countries without carbon pricing and then the goods are exported back into Europe, resulting in no net decrease in emissions. 

To address this, the EU requires importers to pay a carbon price similar to what European producers already pay. This helps keep competition fair while encouraging cleaner production. The more carbon intensive the product, the higher the price. 

The border price began being charged in 2026 and covers about $184 billion in annual trade. 

What it means for Canadian businesses

For Canadian exporters, the CBAM is largely good news. 

Canadian exporters may face relatively low additional costs—particularly where domestic carbon pricing and emissions performance are comparable to EU standards—but outcomes will vary by facility and sector. 

Most of Europe’s largest trading partners are not as prepared. Analysis from BloombergNEF shows that only five of the top 20 exporters to the EU are highly prepared for carbon pricing. (See chart). Canada is one of them, alongside a few non-EU European countries including the UK and Switzerland. 

On the other hand, about half of the trade covered by the policy comes from countries with no price on carbon. The remaining exporting countries (including China and Japan) do have a carbon pricing system, but at lower levels than the EU, so their exports will still face additional costs when entering the European market.  

Canada’s edge: clean electricity 

Canada has another advantage that CBAM makes even more valuable; our clean electricity grid.

The EU policy doesn’t just look at direct emissions, it also considers emissions from the electricity used during production. Canada’s relatively low-carbon electricity grid can significantly reduce the embedded emissions of products like aluminum or steel—potentially lowering CBAM costs compared to more carbon-intensive producers.

Maintaining this advantage will depend on continued investment in clean electricity, particularly as demand grows across the country. 

The bigger picture

CBAM is a clear signal that industrial carbon pricing and electrification policy is also trade policy. 

For Canada, having strong policies like these in place can help attract investment, expand trade opportunities and position Canadian industries to compete in a global economy that is rapidly shifting toward lower-carbon production. 

Written by Noah Henderson, research analyst at New Economy Canada