Canada is facing a carbon tariff threat from the European Union within months as the economic bloc fully implements its Carbon Border Adjustment Mechanism (CBAM).
According to internal documents CBC News obtained through an access to information request, Canadian iron, steel and aluminum are not exempt from the carbon tariff even with Canada’s national price on carbon and its decade-old trade deal with the European Union.
The memo from Global Affairs Canada signed on Dec. 10, 2025, describes the CBAM as a “border charge” or “effectively a ‘carbon tariff.'”
With the Canada-EU Summit this week in Montreal, Ottawa’s diplomats continue to seek an agreement with Brussels before Canadian exporters face additional compliance costs and a carbon charge that European importers will have to pay 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 $2.8 billion worth of goods annually are exposed to the carbon import levy — primarily on metals that are already impacted by U.S tariffs.
The internal note flags “risks” with the implementation of the carbon tariff “occurring as Canada seeks to diversify trade away from the U.S. and toward markets like the EU.”
It adds Canada’s exposure to the tariff “appears modest” overall but the “potential impacts vary considerably across provinces and territories” — hitting Newfoundland and Labrador and Quebec particularly hard.
The briefing note states that an annual average of $885 million worth of the Atlantic province’s iron and steel exports — almost half — are exposed to the EU’s incoming tariff.
In Quebec the value of aluminum, iron and steel exports that are exposed amounts to about $792 million annually.
Those figures are averages based on data between 2021 and 2024, meaning exposure could be higher as Canadian goods seek new buyers to avoid U.S. tariffs.
‘Big change’ to trade regime
Climate trade experts have been warning about the pending EU carbon charge for some time.
“It’s a big deal conceptually,” said Ross-Linden Fraser, an acting director at the Canadian Climate Institute. “This is a big change in the way that trade gets treated.”
The EU’s carbon border adjustment mechanism is being applied at a low level and will ramp up to fully in 2034. It’s meant to encourage exporters to lower the planet-warming emissions created when producing their industrial goods.
But Canadian steel, aluminum, iron and cement exporters are already incurring costs for compliance, having to measure the emissions embedded in their exports and have those figures reviewed by an accredited verifier.
“That’s a costly prospect,” said Aaron Cosbey, an economist who researches carbon border adjustments at the International Institute for Sustainable Development.
The EU, however, is exempting countries like Switzerland, Norway, Iceland and soon the U.K. That’s because their carbon pricing systems are linked or fall under Europe’s carbon market, the EU Emissions Trading System.
The briefing note obtained by CBC News explicitly states that an “exemption … is not currently possible” for Canada because our carbon price is not linked to Europe’s.
“In 2025, the EU carbon price is approximately $134 per tonne, compared to $95 per tonne [in Canada],” according to the briefing note.
The Carney government’s recent energy accord with Alberta weakened Canada’s carbon price further.
Canadian diplomats and ministers are “focused on minimizing” the impact of the carbon tariff on Canadian exporters in their engagements with the European Commission, according to the documents.
Countries that have a carbon price will get credit for that, according to the internal note, but it’s not clear how the EU will recognize Canada’s.
Canada engages EU on carbon tariffs
Environment and Climate Change Minister Julie Dabrusin will be attending the Canada-EU Summit in Montreal.
Her office previously noted that Canada has been “advocating for recognition of Canada’s industrial carbon pricing systems and streamlined approaches that avoid unnecessary administrative burdens for Canadian exporters.”
In an interview with CBC News on Oct. 22, Dabrusin did not say whether negotiators were making progress.
“My goal always is to make sure that we have an industrial carbon pricing system that’s effective and that works for making sure that our industry is competitive and that we are supporting Canadian jobs,” Dabrusin said.
European Union officials briefing reporters ahead of the summit said both countries are “committed to [tackling] climate change.”
With Europe moving ahead with the carbon border adjustment mechanism, both sides are working to have “the same kind of baselines, the same kind of processes,” the officials said.
It’s unclear though what that looks like.
One producer sees an edge
The threat of carbon tariffs for exporters is growing. The internal note speaks of “CBAM proliferation,” flagging several countries developing or assessing carbon border adjustment mechanisms, including the United Kingdom, Australia, Japan and Turkey.
Canada’s major metals producers Rio Tinto and ArcelorMittal declined to comment. But one exporter sees an upside.
Canada Nickel is advancing a nickel project in Timmins, Ont. With its access to low-carbon electricity and plans to capture carbon and store it underground, the company says it is well positioned to export what the industry calls potentially zero-carbon steel to Europe.
It hasn’t calculated the final costs, including administrative compliance, on its balance sheet. But compared with other global exporters, it estimates it will be minimal.
“We’re looking to ship millions of tonnes of steel per year eventually to Europe … but that’ll translate into pennies per tonne over the long run,” said Canada Nickel CEO Mark Selby.
Not every producer may see it that way.
By the time Europe’s carbon tariff fully kicks in by 2034, Cosbey estimates 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,” Cosbey said.
