Forging stronger ties in international markets: Spotlight on Canada and Europe
by Michelle Gluck, Graeme Precious
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Forging stronger ties in international markets: Spotlight on Canada and Europe
- Post Date
- 25 November 2025
- Read Time
- 7 minutes
From government bureaus to company boardrooms, there has been a palpable sense of uncertainty as the world has faced brewing geopolitical and economic shocks this year. An uptick in regional conflicts, combined with the ongoing threat of ever-changing tariff regimes, has ushered in an era of sustained market turbulence as the world continues to deal with the fallout from these multi-dimensional challenges.
And while these global shocks have been felt unequally across the globe. They run particularly deep in both Canada and the European Union (EU). Protectionist trade policies from Canada’s largest trading partner south of the border have put long-standing trade ties into question and have left both government and industry scrambling to seek alternative export markets.
Tomorrow’s transatlantic cooperation: Balancing security, energy, and market access
Across the Atlantic, the EU is on high alert as the bloc deals with the double impacts of trade uncertainty and the war in Ukraine. In her 2025 State of the Union speech in September, European Commission President Ursula von der Leyen called for European states to “fight” for the bloc’s security and economic prosperity [1]. Central to this is European energy and resource sovereignty, as well as enhanced transatlantic cooperation across key industries, including energy, critical minerals, and defence.
In Canada, the Commissioner’s words are backed up by some preliminary actions. On the heels of the G7 meeting in Canada this summer, Prime Minister Mark Carney signed the Security and Defence Partnership with the Commissioner, enabling Canada to participate in joint defence procurements along with EU Member States. The Canada-EU Industry Policy Dialogue was also formed [2], designed to increase cooperation across several critical sectors, including energy, critical minerals, green steel, and aluminium.
Navigating this new economic landscape, marked by increasing economic protectionism, means nations like Canada must balance decarbonisation with improving economic competitiveness while seeking access to new markets. The fallout of this balancing act has resulted in some rollbacks of sustainability commitments, such as the recent pause on federal EV mandates and the halting of a mandatory climate-disclosure rule earlier in the year. These sustainability headwinds certainly aren’t unique to Canada. The US and the EU have also faced similar challenges in light of the current political and economic climate (albeit for different reasons). Notwithstanding, the EU’s high ESG standards remain foundational in its efforts to develop sustainable supply chains to power its energy and defence ambitions.
For Canadian and global producers seeking to diversify into other markets, such as the EU, sustainability regulations can present a strategic opportunity for low-carbon producers to expand their presence in these markets. Instruments like the Carbon Border Adjustment Mechanism (CBAM) can effectively serve as an export tool for countries with low-carbon sectors and established carbon tax systems.
The latest on the Carbon Border Adjustment Mechanism (CBAM)
CBAM is the EU’s policy to put a carbon price on certain imported goods, making sure the carbon costs paid by EU manufacturers also apply to products entering the EU from abroad. Its main goal is to prevent “carbon leakage”, which can happen when companies relocate production to countries with less stringent climate policies, which would serve to undermine the EU’s ambitious emission reduction goals. Currently, the affected products are primarily within carbon-intensive sectors, such as steel, aluminium, cement, fertiliser, electricity, and hydrogen.
While EU importers are primarily responsible for compliance, exporters must provide detailed data on embedded carbon emissions in their goods and production processes. During the current transitional phase (2023–2025), importers have been asked to report the greenhouse gas emissions embedded in their imports to the EU, but no carbon payments are required yet. From 2026 onwards, however, each importer will need to purchase and retire CBAM certificates, effectively paying for the embedded carbon emissions at a price reflecting the EU’s internal carbon market (the EU ETS).
Fortunately, CBAM recognises that some countries have their own carbon pricing systems in place, e.g. the UK Emissions Trading Scheme (UK ETS). Where this occurs, the associated carbon cost already incurred in the country of manufacture is taken into account when the import carbon tariff is set.
Impact of CBAM on exporters seeking access to the European market
- Reporting requirements: Exporters will need to track and provide detailed emissions data for their goods, as EU customers will require this for compliance purposes. This demands robust carbon accounting and transparency throughout supply chains. Our experience in working with businesses exporting to the EU, in compiling this data, has highlighted potential complexities not only in calculating emissions within their own operations but, critically, in identifying and calculating embodied emissions within relevant precursor materials incorporated into the finished product.
- Indirect carbon costs: While the immediate financial responsibility rests with EU importers, exporters could face competitive pressures if their products have higher emissions or if they cannot deliver auditable emissions data, potentially restricting market access.
- Level playing field: For exporters from countries with lower or no carbon pricing, products may become less price-competitive in the EU after the CBAM certificates are priced in, accelerating the need to adopt cleaner processes or source greener materials. For low-carbon producers of in-scope CBAM products, this is a strategic opportunity. For example, China currently operates a carbon market across specific sectors, including power generation, steel, building materials, non-ferrous metals, and petrochemicals, with prices around $15/tonne. In comparison, the EU ETS carbon price operates closer to $90/tonne, meaning importers would be required to pay the difference under CBAM.
- Sectoral risks: Sectors such as steel, aluminium, fertilisers, and cement are initially most impacted, but the EU is considering expanding CBAM’s coverage to more products in the future [3].
Why CBAM is still a strategic advantage for exporters
CBAM can be seen as a direct tax for importers; however, it also offers the opportunity for importing companies to use the data gathered to identify potential carbon ‘hotspots’ within their supply chain. Subsequently, this can potentially provide opportunities to identify lower-carbon alternative materials/supply chain partners, or use this information to influence existing supply chain partners to lower their own direct operational emissions.
For exporters, this legislation should encourage businesses to understand their own direct operational emissions better and potentially identify opportunities to reduce them. This could also present a competitive advantage to businesses that already produce a low-carbon impact product in comparison to rival companies, or alternative materials, as the impact on your clients of the CBAM ‘tax’ will be lower than for purchases from competitors.
Sustainability regulations become a response to global shocks
While international and domestic political circumstances, as well as economic factors, are likely to influence the pace and scale of regulation in this area, the direction of travel is clear. Navigating this more complex and detailed legislative environment successfully will present companies with a stark choice. They either adjust existing strategies and business models to fully embrace the opportunities this presents or attempt to minimise increased costs and ignore growing stakeholder scrutiny.
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The authors would like to thank Peter Polanowski for his important contribution to this article.
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References
[1] https://europa.eu/newsroom/ecpc-failover/pdf/speech-25-2053_ov.pdf
