Canada and EU energy Alliance faces hurdles over carbon tax

Dabrusin’s cautious stance on the EU’s carbon border tax highlights a potential challenge to a developing energy alliance between Canada and the EU, which was discussed at a summit held in Montreal on October 29-30. An internal Canadian document from December 2025 indicates that Ottawa is seeking an exemption from the CBAM.

“Canada continues to seek a practical agreement with the EU to reduce CBAM’s administrative burden for Canadian exporters, and the Prime Minister’s Personal Representative to the European Union is fully engaged,” the document stated.

Prime Minister Mark Carney, at a press conference on October 30, acknowledged discussions regarding trade issues but provided no specifics. “We are working together to find common solutions (on CBAM and other trade issues),” Carney said.

Canada is attempting to diversify its trade relationships, making access to the EU market increasingly vital. However, the Canadian document identifies CBAM as a potential barrier to expanding exports, particularly for aluminum, steel, critical minerals, and hydrogen.

Canadian exports are not exempt from CBAM, potentially exposing exporters to carbon charges and complex administrative requirements, creating market access risks and competitiveness challenges.

Despite having its own carbon-pricing system, Canada does not qualify for an exemption and does not meet the requirements to participate in the EU Emissions Trading System. Stephanie Kusie, the Canadian Conservatives’ shadow minister for international trade, expressed concern over the potential impact of the EU’s CBAM on Canadian businesses, estimating it could affect $3 billion in exports.

Between 2021 and 2024, Canadian exports covered by the EU’s carbon border mechanism averaged C$28 billion annually, representing 7.4% of Canada’s total exports to the bloc.

The EU-Canada summit occurred as the EU seeks to build partnerships amid strained relations with the United States. Carney stated Ottawa’s intention to become an associate member by June of next year, although the definition of associate membership remains under discussion among EU member states.

“The main thing for us is deepening the relationship with the EU,” Dabrusin stated. “The conversations we had today underlined how much we have in common in terms of interests and values, and these are things we can build on as we launch the Alliance for the Future.”