Internal Memo Confirms Canadian Metals Face EU Carbon Tariffs in 2027

Canadian iron, steel, and aluminum exporters will face a carbon charge from the European Union starting in 2027, according to internal government documents. A memo from Global Affairs Canada, signed on December 10, 2025, confirms that the country is not exempt from the EU’s Carbon Border Adjustment Mechanism. The document describes the mechanism as a border charge or effectively a carbon tariff.

The European Union is proceeding with the policy because Canada’s national carbon price is not linked to the EU Emissions Trading System. The briefing note states that an exemption is not currently possible for Canada. In 2025, the EU carbon price stood at approximately $134 per tonne, compared to $95 per tonne in Canada. The memo notes that while countries with linked carbon pricing systems, such as Switzerland and Norway, are exempt, Canada’s system does not qualify for that treatment.

Global Affairs Canada estimates that $2.8 billion in annual Canadian goods are exposed to the levy. These figures are based on average data from 2021 to 2024. The exposure is not evenly distributed across the country. Newfoundland and Labrador faces the highest relative impact, with $885 million in annual iron and steel exports subject to the tariff. This amount represents nearly half of the province's exports in those sectors. Quebec follows, with approximately $792 million in annual aluminum, iron, and steel exports exposed to the charge.

Prime Minister Mark Carney is in Montreal for a summit with EU leaders this week. He stated on Tuesday that the meeting marks the start of negotiations for Canada to become a closer strategic partner to the bloc. Environment and Climate Change Minister Julie Dabrusin is also attending. Her office said Canada is advocating for recognition of its industrial carbon pricing systems to avoid administrative burdens. Dabrusin told CBC News on October 22 that her goal is to ensure the industrial carbon pricing system remains effective and competitive for Canadian jobs.

Economists warn that compliance costs are rising even before the full tariff takes effect. Exporters must already measure embedded emissions and have them reviewed by accredited verifiers. Aaron Cosbey, an economist at the International Institute for Sustainable Development, called the compliance requirements a costly prospect. By the time the mechanism is fully implemented in 2034, Cosbey estimates Canadian steel could incur an additional cost of $150 per tonne. He noted that this amount represents more than 10 per cent of the current market price for a tonne of steel.

Some producers view the situation as an opportunity. Canada Nickel, which is developing a project in Timmins, Ontario, said its access to low-carbon electricity positions it well for export. CEO Mark Selby estimated that the tariff would translate into pennies per tonne for his company over the long run. However, Canada Nickel has not yet calculated final administrative compliance costs on its balance sheet. Rio Tinto and ArcelorMittal declined to comment on the internal documents.