Federal Memo Confirms EU Carbon Tariff Will Hit Canadian Metals

Canadian exporters of iron, steel, and aluminum will pay a new carbon charge at the European Union border starting in 2027, according to internal government documents. A Global Affairs Canada memo dated December 10, 2025, states that these goods will not receive an exemption despite existing trade agreements. The document describes the mechanism, known as CBAM, as effectively a carbon tariff.

The revelation arrives as Prime Minister Mark Carney and EU leaders meet for a summit in Montreal this week. Ottawa aims to secure a strategic partnership agreement before the new rules take full effect. The government estimates that $2.8 billion in annual exports are exposed to the levy. Most of this value is in metals already impacted by U.S. tariffs.

Provincial impacts vary widely. Newfoundland and Labrador faces the greatest exposure, with $885 million in annual iron and steel exports subject to the charge. Quebec follows closely, with $792 million in exposed aluminum, iron, and steel exports. These figures are based on average data from 2021 to 2024. Exposure may increase as Canadian producers seek new buyers to offset U.S. market losses.

The EU exempts countries whose carbon pricing systems are linked to its own Emissions Trading System. Switzerland, Norway, Iceland, and soon the United Kingdom qualify for this relief. Canada does not qualify because its carbon price is not integrated with the EU system. In 2025, the EU carbon price stands at approximately $134 per tonne, while the Canadian price is $95 per tonne. A recent energy accord with Alberta has further weakened the Canadian carbon price.

Economists warn of rising compliance costs. Aaron Cosbey, an economist at the International Institute for Sustainable Development, noted that exporters must already measure and verify embedded emissions. He estimated that by 2034, the cost of Canadian steel could rise by $150 per tonne. This represents more than 10 percent of the current open market price for a tonne of steel.

Julie Dabrusin, the Environment and Climate Change Minister, is attending the Montreal summit. Her office states that Canada is advocating for recognition of its industrial carbon pricing and streamlined administrative processes. In a recent interview, Dabrusin did not specify whether negotiators had made progress. EU officials said both sides are working toward similar baselines and processes, though details remain vague.

The trend is expanding beyond Europe. The federal memo notes that the United Kingdom, Australia, Japan, and Turkey are developing or assessing similar border adjustment mechanisms. Major producers Rio Tinto and ArcelorMittal declined to comment. Mark Selby, CEO of Canada Nickel, views the change as an advantage for his Timmins, Ontario project. He said shipping low-carbon steel to Europe would cost pennies per tonne over the long run.

The EU is currently implementing the charge at a low level. The mechanism will ramp up to full force by 2034. The goal is to encourage exporters to reduce emissions from industrial production. Canadian exporters must now prepare for these phased costs while diplomats continue negotiations in Montreal.